XNYS:LEN Lennar Corp Quarterly Report 10-Q Filing - 2/29/2012

Effective Date 2/29/2012

XNYS:LEN (Lennar Corp): Fair Value Estimate
Premium
XNYS:LEN (Lennar Corp): Consider Buying
Premium
XNYS:LEN (Lennar Corp): Consider Selling
Premium
XNYS:LEN (Lennar Corp): Fair Value Uncertainty
Premium
XNYS:LEN (Lennar Corp): Economic Moat
Premium
XNYS:LEN (Lennar Corp): Stewardship
Premium
 

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

 

FORM 10-Q

 

 

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF

THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended February 29, 2012

Commission File Number: 1-11749

 

 

Lennar Corporation

(Exact name of registrant as specified in its charter)

 

 

 

Delaware   95-4337490

(State or other jurisdiction of

incorporation or organization)

 

(I.R.S. Employer

Identification No.)

700 Northwest 107th Avenue, Miami, Florida 33172

(Address of principal executive offices) (Zip Code)

(305) 559-4000

(Registrant’s telephone number, including area code)

 

 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    YES  x    NO  ¨

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).    YES  x    NO  ¨

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer,” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

 

Large accelerated filer   x    Accelerated filer   ¨
Non-accelerated filer   ¨    Smaller reporting company   ¨

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    YES  ¨    NO  x

Common stock outstanding as of March 31, 2012:

Class A 157,909,024

Class B   31,303,195

 

 

 


Part I. Financial Information

Item 1. Financial Statements

Lennar Corporation and Subsidiaries

Condensed Consolidated Balance Sheets

(In thousands, except shares and per share amounts)

(unaudited)

 

     February 29,
2012 (1)
     November 30,
2011 (1)
 

ASSETS

     

Lennar Homebuilding:

     

Cash and cash equivalents

   $ 792,165         1,024,212   

Restricted cash

     8,001         8,590   

Receivables, net

     47,745         53,977   

Inventories:

     

Finished homes and construction in progress

     1,429,882         1,334,703   

Land and land under development

     2,858,079         2,636,510   

Consolidated inventory not owned

     379,581         389,322   
  

 

 

    

 

 

 

Total inventories

     4,667,542         4,360,535   

Investments in unconsolidated entities

     563,364         545,760   

Other assets

     440,146         524,694   
  

 

 

    

 

 

 
     6,518,963         6,517,768   

Rialto Investments:

     

Cash and cash equivalents

     74,186         83,938   

Defeasance cash to retire notes payable

     111,223         219,386   

Loans receivable, net

     649,791         713,354   

Real estate owned, held-for-sale

     101,579         143,677   

Real estate owned, held-and-used, net

     630,570         582,111   

Investments in unconsolidated entities

     149,735         124,712   

Other assets

     34,637         29,970   
  

 

 

    

 

 

 
     1,751,721         1,897,148   

Lennar Financial Services

     596,810         739,755   
  

 

 

    

 

 

 

Total assets

   $ 8,867,494         9,154,671   
  

 

 

    

 

 

 

 

(1) Under certain provisions of Accounting Standards Codification (“ASC”) Topic 810, Consolidations, (“ASC 810”) the Company is required to separately disclose on its condensed consolidated balance sheets the assets of consolidated variable interest entities (“VIEs”) that are owned by the consolidated VIEs and non-recourse liabilities of consolidated VIEs.

As of February 29, 2012, total assets include $2,111.5 million related to consolidated VIEs of which $19.0 million is included in Lennar Homebuilding cash and cash equivalents, $5.3 million in Lennar Homebuilding receivables, net, $0.5 million in Lennar Homebuilding finished homes and construction in progress, $504.1 million in Lennar Homebuilding land and land under development, $67.5 million in Lennar Homebuilding consolidated inventory not owned, $43.8 million in Lennar Homebuilding investments in unconsolidated entities, $219.4 million in Lennar Homebuilding other assets, $69.4 million in Rialto Investments cash and cash equivalents, $111.2 million in Rialto Investments defeasance cash to retire notes payable, $523.3 million in Rialto Investments loans receivable, net, $87.8 million in Rialto Investments real estate owned, held-for-sale, $450.3 million in Rialto Investments real estate owned, held-and-used, net, $0.6 million in Rialto Investments in unconsolidated entities and $9.3 million in Rialto Investments other assets.

As of November 30, 2011, total assets include $2,317.4 million related to consolidated VIEs of which $19.6 million is included in Lennar Homebuilding cash and cash equivalents, $5.3 million in Lennar Homebuilding receivables, net, $0.1 million in Lennar Homebuilding finished homes and construction in progress, $538.2 million in Lennar Homebuilding land and land under development, $71.6 million in Lennar Homebuilding consolidated inventory not owned, $43.4 million in Lennar Homebuilding investments in unconsolidated entities, $219.6 million in Lennar Homebuilding other assets, $80.0 million in Rialto Investments cash and cash equivalents, $219.4 million in Rialto Investments defeasance cash to retire notes payable, $565.6 million in Rialto Investments loans receivable, net, $115.4 million in Rialto Investments real estate owned, held-for-sale, $428.0 million in Rialto Investments real estate owned, held-and-used, net, $0.6 million in Rialto Investments in unconsolidated entities and $10.6 million in Rialto Investments other assets.

See accompanying notes to condensed consolidated financial statements.

 

2


Lennar Corporation and Subsidiaries

Condensed Consolidated Balance Sheets – (Continued)

(In thousands, except shares and per share amounts)

(unaudited)

 

     February 29,
2012 (2)
    November 30,
2011 (2)
 

LIABILITIES AND EQUITY

    

Lennar Homebuilding:

    

Accounts payable

   $ 170,216        201,101   

Liabilities related to consolidated inventory not owned

     317,136        326,200   

Senior notes and other debts payable

     3,472,937        3,362,759   

Other liabilities

     562,402        602,231   
  

 

 

   

 

 

 
     4,522,691        4,492,291   

Rialto Investments:

    

Notes payable and other liabilities

     612,144        796,120   

Lennar Financial Services

     409,406        562,735   
  

 

 

   

 

 

 

Total liabilities

     5,544,241        5,851,146   
  

 

 

   

 

 

 

Stockholders’ equity:

    

Preferred stock

     —          —     

Class A common stock of $0.10 par value; Authorized: February 29, 2012 and November 30, 2011 - 300,000,000 shares; Issued: February 29, 2012 - 169,563,027 and November 30, 2011 - 169,099,760 shares

     16,956        16,910   

Class B common stock of $0.10 par value; Authorized: February 29, 2012 and November 30, 2011 - 90,000,000 shares; Issued: February 29, 2012 - 32,982,815 and November 30, 2011 - 32,982,815 shares

     3,298        3,298   

Additional paid-in capital

     2,354,433        2,341,079   

Retained earnings

     963,807        956,401   

Treasury stock, at cost; February 29, 2012 - 11,702,017 Class A common shares and 1,679,620 Class B common shares; November 30, 2011 - 12,000,017 Class A common shares and 1,679,620 Class B common shares

     (615,698     (621,220
  

 

 

   

 

 

 

Total stockholders’ equity

     2,722,796        2,696,468   
  

 

 

   

 

 

 

Noncontrolling interests

     600,457        607,057   
  

 

 

   

 

 

 

Total equity

     3,323,253        3,303,525   
  

 

 

   

 

 

 

Total liabilities and equity

   $ 8,867,494        9,154,671   
  

 

 

   

 

 

 

 

(2) As of February 29, 2012, total liabilities include $745.5 million related to consolidated VIEs as to which there was no recourse against the Company, of which $8.3 million is included in Lennar Homebuilding accounts payable, $39.1 million in Lennar Homebuilding liabilities related to consolidated inventory not owned, $170.1 million in Lennar Homebuilding senior notes and other debts payable, $34.9 million in Lennar Homebuilding other liabilities and $493.1 million in Rialto Investments notes payable and other liabilities.

As of November 30, 2011, total liabilities include $902.3 million related to consolidated VIEs as to which there was no recourse against the Company, of which $12.7 million is included in Lennar Homebuilding accounts payable, $43.6 million in Lennar Homebuilding liabilities related to consolidated inventory not owned, $175.3 million in Lennar Homebuilding senior notes and other debts payable, $16.7 million in Lennar Homebuilding other liabilities and $654.0 million in Rialto Investments notes payable and other liabilities.

See accompanying notes to condensed consolidated financial statements.

 

3


Lennar Corporation and Subsidiaries

Condensed Consolidated Statements of Operations

(In thousands, except per share amounts)

(unaudited)

 

     Three Months Ended  
     February 29,
2012
    February 28,
2011
 

Revenues:

    

Lennar Homebuilding

   $ 624,433        466,709   

Lennar Financial Services

     68,215        57,713   

Rialto Investments

     32,208        33,623   
  

 

 

   

 

 

 

Total revenues

     724,856        558,045   
  

 

 

   

 

 

 

Cost and expenses:

    

Lennar Homebuilding

     584,745        447,763   

Lennar Financial Services

     59,965        56,530   

Rialto Investments

     33,370        28,349   

Corporate general and administrative

     26,842        23,352   
  

 

 

   

 

 

 

Total costs and expenses

     704,922        555,994   
  

 

 

   

 

 

 

Lennar Homebuilding equity in earnings from unconsolidated entities

     1,083        8,661   

Lennar Homebuilding other income, net (1)

     4,067        29,960   

Other interest expense

     (24,849     (22,079

Rialto Investments equity in earnings from unconsolidated entities

     18,458        4,525   

Rialto Investments other income (expense), net

     (12,240     13,203   
  

 

 

   

 

 

 

Earnings before income taxes

     6,453        36,321   

Benefit for income taxes

     1,524        2,405   
  

 

 

   

 

 

 

Net earnings (including net earnings (loss) attributable to noncontrolling interests)

   $ 7,977        38,726   

Less: Net earnings (loss) attributable to noncontrolling interests (2)

     (6,991     11,320   
  

 

 

   

 

 

 

Net earnings attributable to Lennar

   $ 14,968        27,406   
  

 

 

   

 

 

 

Basic earnings per share

   $ 0.08        0.15   
  

 

 

   

 

 

 

Diluted earnings per share

   $ 0.08        0.14   
  

 

 

   

 

 

 

Cash dividends per each Class A and Class B common share

   $ 0.04        0.04   
  

 

 

   

 

 

 

 

(1) Lennar Homebuilding other income, net for the three months ended February 28, 2011 includes $8.3 million of valuation adjustments to the Company’s investments in Lennar Homebuilding’s unconsolidated entities.
(2) Net earnings (loss) attributable to noncontrolling interests for the three months ended February 29, 2012 and February 28, 2011 includes ($4.3) million and $12.0 million, respectively, related to the FDIC’s interest in the portfolio of real estate loans that the Company acquired in partnership with the FDIC.

See accompanying notes to condensed consolidated financial statements.

 

4


Lennar Corporation and Subsidiaries

Condensed Consolidated Statements of Cash Flows

(In thousands)

(unaudited)

 

     Three Months Ended  
     February 29,
2012
    February 28,
2011
 

Cash flows from operating activities:

    

Net earnings (including net earnings (loss) attributable to noncontrolling interests)

   $ 7,977        38,726   

Adjustments to reconcile net earnings (including net earnings (loss) attributable to noncontrolling interests) to net cash provided by (used in) operating activities:

    

Depreciation and amortization

     7,630        3,767   

Amortization of discount/premium on debt, net

     5,371        4,061   

Lennar Homebuilding equity in earnings from unconsolidated entities

     (1,083     (8,661

Distributions of earnings from Lennar Homebuilding unconsolidated entities

     126        1,322   

Rialto Investments equity in earnings from unconsolidated entities

     (18,458     (4,525

Distributions of earnings from Rialto Investments unconsolidated entities

     757        1,503   

Share based compensation expense

     8,161        6,730   

Excess tax benefits from share-based awards

     —          (258

Gains on retirement of Lennar Homebuilding other debts payable

     (988     —     

Unrealized and realized gains on Rialto Investments real estate owned

     (5,831     (17,375

Gains on sale of Rialto Investments commercial mortgage-backed securities

     —          (276

Impairments and charge-offs of Rialto Investments loans receivable and REO

     4,748        —     

Valuation adjustments and write-offs of option deposits and pre-acquisition costs, other receivables and other assets

     2,326        18,014   

Changes in assets and liabilities:

    

Decrease in restricted cash

     773        3,214   

Decrease in receivables

     101,672        43,694   

Increase in inventories, excluding valuation adjustments and write-offs of option deposits and pre-acquisition costs

     (172,159     (81,071

Increase in other assets

     (1,183     (13,851

Decrease in Lennar Financial Services loans-held-for-sale

     30,866        110,412   

Decrease in accounts payable and other liabilities

     (103,149     (95,751
  

 

 

   

 

 

 

Net cash provided by (used in) operating activities

     (132,444     9,675   
  

 

 

   

 

 

 

Cash flows from investing activities:

    

Net disposals of operating properties and equipment

     1,140        8   

Investments in and contributions to Lennar Homebuilding unconsolidated entities

     (26,810     (25,177

Distributions of capital from Lennar Homebuilding unconsolidated entities

     9,897        7,630   

Investments in and contributions to Rialto Investments unconsolidated entities

     (7,294     (10,575

Distributions of capital from Rialto Investments unconsolidated entities

     81        —     

Decrease (increase) in Rialto Investments defeasance cash to retire notes payable

     108,163        (24,250

Receipts of principal payments on Rialto Investments loans receivable

     33,549        49,954   

Proceeds from sales of Rialto Investments real estate owned

     37,868        7,792   

Improvements to Rialto Investments real estate owned

     (3,963     (2,718

Purchases of Lennar Homebuilding investments available-for-sale

     (2,408     —     

Proceeds from sales of Lennar Homebuilding investments available-for-sale

     6,436        —     

Decrease in Lennar Financial Services loans held-for-investment, net

     447        197   

Purchases of Lennar Financial Services investment securities

     (1,150     (5,126

Proceeds from maturities of Lennar Financial Services investment securities

     750        129   
  

 

 

   

 

 

 

Net cash provided by (used in) investing activities

   $ 156,706        (2,136
  

 

 

   

 

 

 

See accompanying notes to condensed consolidated financial statements.

 

5


Lennar Corporation and Subsidiaries

Condensed Consolidated Statements of Cash Flows

(In thousands)

(unaudited)

 

     Three Months Ended  
     February 29,
2012
    February 28,
2011
 

Cash flows from financing activities:

    

Net repayments under Lennar Financial Services debt

   $ (150,684     (149,339

Proceeds from 3.25% convertible senior notes due 2021

     50,000        —     

Debt issuance costs

     (1,035     —     

Principal repayments on Rialto Investments notes payable

     (170,026     —     

Proceeds from other borrowings

     28,090        75   

Principal payments on other borrowings

     (20,267     (27,838

Exercise of land option contracts from an unconsolidated land investment venture

     (4,628     (10,855

Receipts related to noncontrolling interests

     391        115   

Payments related to noncontrolling interests

     —          (4,789

Excess tax benefits from share-based awards

     —          258   

Common stock:

    

Issuances

     10,761        4,754   

Dividends

     (7,562     (7,469
  

 

 

   

 

 

 

Net cash used in financing activities

     (264,960     (195,088
  

 

 

   

 

 

 

Net decrease in cash and cash equivalents

     (240,698     (187,549

Cash and cash equivalents at beginning of period

     1,163,604        1,394,135   
  

 

 

   

 

 

 

Cash and cash equivalents at end of period

   $ 922,906        1,206,586   
  

 

 

   

 

 

 

Summary of cash and cash equivalents:

    

Lennar Homebuilding

   $ 792,165        1,014,000   

Lennar Financial Services

     56,555        109,625   

Rialto Investments

     74,186        82,961   
  

 

 

   

 

 

 
   $ 922,906        1,206,586   
  

 

 

   

 

 

 

Supplemental disclosures of non-cash investing and financing activities:

    

Lennar Homebuilding:

    

Non-cash contributions to unconsolidated entities

   $ 1,314        14,098   

Non-cash distributions from unconsolidated entities

   $ —          11,006   

Inventory acquired in satisfaction of other assets including investments available-for-sale

   $ 90,385        —     

Non-cash purchases of investments available-for-sale

   $ 12,520        —     

Purchases of inventories financed by sellers

   $ 49,615        10,476   

Rialto Investments:

    

Real estate owned acquired in satisfaction/partial satisfaction of loans receivable

   $ 41,588        175,875   

Consolidations of newly formed or previously unconsolidated entities, net:

    

Inventories

   $ —          18,621   

Investments in Lennar Homebuilding unconsolidated entities

   $ —          (525

Debts payable

   $ —          (14,703

Other liabilities

   $ —          (2,864

Noncontrolling interests

   $ —          (529

See accompanying notes to condensed consolidated financial statements.

 

6


Lennar Corporation and Subsidiaries

Notes to Condensed Consolidated Financial Statements

(unaudited)

 

(1) Basis of Presentation

Basis of Consolidation

The accompanying condensed consolidated financial statements include the accounts of Lennar Corporation and all subsidiaries, partnerships and other entities in which Lennar Corporation has a controlling interest and VIEs (see Note 15) in which Lennar Corporation is deemed to be the primary beneficiary (the “Company”). The Company’s investments in both unconsolidated entities in which a significant, but less than controlling, interest is held and in VIEs in which the Company is not deemed to be the primary beneficiary, are accounted for by the equity method. All intercompany transactions and balances have been eliminated in consolidation. The condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) for interim financial information, the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by GAAP for complete financial statements. These condensed consolidated financial statements should be read in conjunction with the consolidated financial statements in the Company’s Annual Report on Form 10-K for the year ended November 30, 2011. In the opinion of management, all adjustments (consisting of normal recurring adjustments) necessary for the fair presentation of the accompanying condensed consolidated financial statements have been made.

The Company has historically experienced, and expects to continue to experience, variability in quarterly results. The condensed consolidated statement of operations for the three months ended February 29, 2012 is not necessarily indicative of the results to be expected for the full year.

Reclassification

Certain prior year amounts in the condensed consolidated financial statements have been reclassified to conform with the 2012 presentation.

Use of Estimates

The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the amounts reported in the condensed consolidated financial statements and accompanying notes. Actual results could differ from those estimates.

 

(2) Operating and Reporting Segments

The Company’s operating segments are aggregated into reportable segments, based primarily upon similar economic characteristics, geography and product type. The Company’s reportable segments consist of:

(1) Homebuilding East

(2) Homebuilding Central

(3) Homebuilding West

(4) Homebuilding Southeast Florida

(5) Homebuilding Houston

(6) Lennar Financial Services

(7) Rialto Investments

Information about homebuilding activities in states which are not economically similar to other states in the same geographic area is grouped under “Homebuilding Other,” which is not considered a reportable segment.

 

7


Evaluation of segment performance is based primarily on operating earnings (loss) before income taxes. Operations of the Company’s homebuilding segments primarily include the construction and sale of single-family attached and detached homes, as well as the purchase, development and sale of residential land directly and through the Company’s unconsolidated entities. Operating earnings (loss) for the homebuilding segments consist of revenues generated from the sales of homes and land, equity in earnings (loss) from unconsolidated entities and other income (expense), net, less the cost of homes sold and land sold, selling, general and administrative expenses and other interest expense of the segment. The Company’s reportable homebuilding segments and all other homebuilding operations not required to be reported separately have operations located in:

East: Florida(1), Georgia, Maryland, New Jersey, North Carolina, South Carolina and Virginia

Central: Arizona, Colorado and Texas(2)

West: California and Nevada

Southeast Florida: Southeast Florida

Houston: Houston, Texas

Other: Illinois and Minnesota

 

  (1) Florida in the East reportable segment excludes Southeast Florida, which is its own reportable segment.
  (2) Texas in the Central reportable segment excludes Houston, Texas, which is its own reportable segment.

Operations of the Lennar Financial Services segment include mortgage financing, title insurance and closing services for both buyers of the Company’s homes and others. Substantially all of the loans the Lennar Financial Services segment originates are sold within a short period in the secondary mortgage market on a servicing released, non-recourse basis. After the loans are sold, the Company retains potential liability for possible claims by purchasers that it breached certain limited industry-standard representations and warranties in the loan sale agreements. Lennar Financial Services’ operating earnings consist of revenues generated primarily from mortgage financing, title insurance and closing services, less the cost of such services and certain selling, general and administrative expenses incurred by the segment. The Lennar Financial Services segment operates generally in the same states as the Company’s homebuilding operations, as well as in other states.

Operations of the Rialto Investments (“Rialto”) segment include sourcing, underwriting, pricing, managing and ultimately monetizing real estate and real estate related assets, as well as providing similar services to others in markets across the country. Rialto’s operating earnings (loss) consists of revenues generated primarily from accretable interest income associated with portfolios of real estate loans acquired in partnership with the FDIC and other portfolios of real estate loans and assets acquired, fees for sub-advisory services, other income, net, consisting primarily of gains upon foreclosure of real estate owned (“REO”) and gains on sale of REO, and equity in earnings (loss) from unconsolidated entities, less the costs incurred by the segment for managing portfolios, REO expenses, due diligence expenses related to both completed and abandoned transactions, and other general administrative expenses.

Each reportable segment follows the same accounting policies described in Note 1 – “Summary of Significant Accounting Policies” to the consolidated financial statements in the Company’s 2011 Annual Report on Form 10-K. Operational results of each segment are not necessarily indicative of the results that would have occurred had the segment been an independent, stand-alone entity during the periods presented.

 

8


Financial information relating to the Company’s operations was as follows:

 

(In thousands)    February 29,
2012
     November 30,
2011
 

Assets:

     

Homebuilding East

   $ 1,407,776         1,312,750   

Homebuilding Central

     682,335         681,859   

Homebuilding West

     2,187,425         2,169,503   

Homebuilding Southeast Florida

     638,211         604,415   

Homebuilding Houston

     242,899         230,076   

Homebuilding Other

     626,435         595,615   

Rialto Investments (1)

     1,751,721         1,897,148   

Lennar Financial Services

     596,810         739,755   

Corporate and unallocated

     733,882         923,550   
  

 

 

    

 

 

 

Total assets

   $ 8,867,494         9,154,671   
  

 

 

    

 

 

 

 

(1) Consists primarily of assets of consolidated VIEs (see Note 8).

 

     Three Months Ended  
(In thousands)    February 29,
2012
    February 28,
2011
 

Revenues:

    

Homebuilding East

   $ 244,833        182,371   

Homebuilding Central

     85,713        67,006   

Homebuilding West

     123,085        96,382   

Homebuilding Southeast Florida

     49,789        35,091   

Homebuilding Houston

     84,834        52,953   

Homebuilding Other

     36,179        32,906   

Lennar Financial Services

     68,215        57,713   

Rialto Investments

     32,208        33,623   
  

 

 

   

 

 

 

Total revenues (1)

   $ 724,856        558,045   
  

 

 

   

 

 

 

Operating earnings (loss):

    

Homebuilding East

   $ 13,947        5,661   

Homebuilding Central

     1,064        (15,124

Homebuilding West (2)

     (7,573     49,345   

Homebuilding Southeast Florida

     6,634        4,174   

Homebuilding Houston

     4,516        (41

Homebuilding Other

     1,401        (8,527

Lennar Financial Services

     8,250        1,183   

Rialto Investments

     5,056        23,002   
  

 

 

   

 

 

 

Total operating earnings

     33,295        59,673   

Corporate general and administrative expenses

     26,842        23,352   
  

 

 

   

 

 

 

Earnings before income taxes

   $ 6,453        36,321   
  

 

 

   

 

 

 

 

(1) Total revenues are net of sales incentives of $84.5 million ($34,200 per home delivered) for the three months ended February 29, 2012, compared to $62.9 million ($33,100 per home delivered) for the three months ended February 28, 2011.
(2) For the three months ended February 28, 2011, operating earnings include $37.5 million related to the receipt of a litigation settlement, as well as $15.4 million related to the Company’s share of a gain on debt extinguishment and the recognition of $10.0 million of deferred management fees related to management services previously performed by the Company for one of its Lennar Homebuilding unconsolidated entities.

 

9


Valuation adjustments and write-offs relating to the Company’s homebuilding operations were as follow:

 

     Three Months Ended  
(In thousands)    February 29,
2012
     February 28,
2011
 

Valuation adjustments to finished homes, CIP and land on which the Company intends to build homes:

     

East

   $ 217         852   

Central

     153         3,876   

West

     530         14   

Southeast Florida

     328         —     

Houston

     61         49   

Other

     736         21   
  

 

 

    

 

 

 

Total

     2,025         4,812   
  

 

 

    

 

 

 

Valuation adjustments to land the Company intends to sell or has sold to third parties:

     

East

     —           20   

Central

     —           23   

Houston

     —           10   
  

 

 

    

 

 

 

Total

     —           53   
  

 

 

    

 

 

 

Write-offs of option deposits and pre-acquisition costs:

     

East

     7         —     

Central

     49         —     

West

     232         —     

Houston

     —           81   

Other

     2         —     
  

 

 

    

 

 

 

Total

     290         81   
  

 

 

    

 

 

 

Company’s share of valuation adjustments related to assets of unconsolidated entities:

     

Central

     —           371   

West

     —           1,660   

Other

     —           2,495   
  

 

 

    

 

 

 

Total

     —           4,526   
  

 

 

    

 

 

 

Valuation adjustments to investments of unconsolidated entities:

     

East

     11         8,262   
  

 

 

    

 

 

 

Total

     11         8,262   
  

 

 

    

 

 

 

Write-offs of other receivables and other assets:

     

Other

     —           4,806   
  

 

 

    

 

 

 

Total

     —           4,806   
  

 

 

    

 

 

 

Total valuation adjustments and write-offs of option deposits and pre-acquisition costs, other receivables and other assets

   $ 2,326         22,540   
  

 

 

    

 

 

 

During the first quarter of 2012, the Company recorded lower valuation adjustments than the first quarter of 2011. Changes in market conditions and other specific developments may cause the Company to re-evaluate its strategy regarding certain assets that could result in further valuation adjustments and/or additional write-offs of option deposits and pre-acquisition costs due to abandonment of those options contracts.

 

10


(3) Lennar Homebuilding Investments in Unconsolidated Entities

Summarized condensed financial information on a combined 100% basis related to Lennar Homebuilding’s unconsolidated entities that are accounted for by the equity method was as follows:

Statements of Operations

 

     Three Months Ended  
(In thousands)    February 29,
2012
    February 28,
2011
 

Revenues

   $ 82,644        67,063   

Costs and expenses

     83,422        88,580   

Other income

     —          123,007   
  

 

 

   

 

 

 

Net earnings (loss) of unconsolidated entities

   $ (778     101,490   
  

 

 

   

 

 

 

Lennar Homebuilding equity in earnings from unconsolidated entities (1)

   $ 1,083        8,661   
  

 

 

   

 

 

 

 

(1) For the three months ended February 28, 2011, Lennar Homebuilding equity in earnings includes a $15.4 million gain related to the Company’s share of a $123.0 million gain on debt extinguishment at a Lennar Homebuilding unconsolidated entity, partially offset by $4.5 million of valuation adjustments related to assets of Lennar Homebuilding’s unconsolidated entities.

Balance Sheets

 

(In thousands)    February 29,
2012
     November 30,
2011
 

Assets:

     

Cash and cash equivalents

   $ 85,510         90,584   

Inventories

     2,952,727         2,895,241   

Other assets

     212,756         277,152   
  

 

 

    

 

 

 
   $ 3,250,993         3,262,977   
  

 

 

    

 

 

 

Liabilities and equity:

     

Account payable and other liabilities

   $ 265,535         246,384   

Debt

     895,755         960,627   

Equity

     2,089,703         2,055,966   
  

 

 

    

 

 

 
   $ 3,250,993         3,262,977   
  

 

 

    

 

 

 

As of February 29, 2012, the Company’s recorded investments in Lennar Homebuilding unconsolidated entities were $563.4 million while the underlying equity in Lennar Homebuilding unconsolidated entities partners’ net assets was $657.5 million, primarily as a result of the Company buying at a discount the partners’ equity in a Lennar Homebuilding unconsolidated entity. At November 30, 2011, the Company’s recorded investments in Lennar Homebuilding unconsolidated entities were $545.8 million while the underlying equity in Lennar Homebuilding unconsolidated entities partners’ net assets was $628.1 million, primarily as a result of the Company buying at a discount the partners’ equity in a Lennar Homebuilding unconsolidated entity.

During the three months ended February 28, 2011, a Lennar Homebuilding unconsolidated entity was restructured. As part of the restructuring, the development management agreement (the “Agreement”) between the Company and the unconsolidated entity was terminated and a general release agreement was executed whereby the Company was released from any and all obligations, except any future potential third-party claims, associated with the Agreement. As a result of the restructuring, the termination of the Agreement and the execution of the general release agreement, the Company recognized $10 million of deferred management fees related to management services previously performed by the Company prior to November 30, 2010. The Company did not provide any other services to the unconsolidated entity associated with the deferred management fees recognized.

 

11


In 2007, the Company sold a portfolio of land to a strategic land investment venture with Morgan Stanley Real Estate Fund II, L.P., an affiliate of Morgan Stanley & Co., Inc., in which the Company has approximately a 20% ownership interest and 50% voting rights. Due to the Company’s continuing involvement, the transaction did not qualify as a sale by the Company under GAAP; thus, the inventory has remained on the Company’s condensed consolidated balance sheet in consolidated inventory not owned. As of February 29, 2012 and November 30, 2011, the portfolio of land (including land development costs) of $369.7 million and $372.0 million, respectively, is also reflected as inventory in the summarized condensed financial information related to Lennar Homebuilding’s unconsolidated entities.

The Lennar Homebuilding unconsolidated entities in which the Company has investments usually finance their activities with a combination of partner equity and debt financing. In some instances, the Company and its partners have guaranteed debt of certain unconsolidated entities.

The summary of the Company’s net recourse exposure related to Lennar Homebuilding unconsolidated entities in which the Company has investments was as follows:

 

(In thousands)    February 29,
2012
    November 30,
2011
 

Several recourse debt - repayment

   $ 51,518        62,408   

Joint and several recourse debt - repayment

     28,699        46,292   
  

 

 

   

 

 

 

The Company’s maximum recourse exposure

     80,217        108,700   

Less: joint and several reimbursement agreements with the Company’s partners

     (24,627     (33,795
  

 

 

   

 

 

 

The Company’s net recourse exposure

   $ 55,590        74,905   
  

 

 

   

 

 

 

During the three months ended February 29, 2012, the Company’s maximum recourse exposure related to indebtedness of Lennar Homebuilding unconsolidated entities decreased by $28.5 million, as a result of $2.9 million paid by the Company primarily through capital contributions to unconsolidated entities and $25.6 million primarily related to the joint ventures selling assets and other transactions.

As of February 29, 2012 and November 30, 2011, the Company had no obligation guarantees accrued. The obligation guarantees, if any, are estimated based on current facts and circumstances and any unexpected changes may lead the Company to incur obligation guarantees in the future.

The recourse debt exposure in the previous table represents the Company’s maximum recourse exposure to loss from guarantees and does not take into account the underlying value of the collateral or the other assets of the borrowers that are available to repay the debt or to reimburse the Company for any payments on its guarantees. The Lennar Homebuilding unconsolidated entities that have recourse debt have a significant amount of assets and equity. The summarized balance sheets of Lennar Homebuilding’s unconsolidated entities with recourse debt were as follows:

 

(In thousands)    February 29,
2012
     November 30,
2011
 

Assets

   $ 1,806,848         1,865,144   

Liabilities

   $ 782,415         815,815   

Equity

   $ 1,024,433         1,049,329   

In addition, in most instances in which the Company has guaranteed debt of a Lennar Homebuilding unconsolidated entity, the Company’s partners have also guaranteed that debt and are required to contribute their share of the guarantee payments. Some of the Company’s guarantees are repayment guarantees and some are maintenance guarantees. In a repayment guarantee, the Company and its venture partners guarantee repayment of a portion or all of the debt in the event of default before the lender would have to exercise its rights against the collateral. In the event of default, if the Company’s venture partner does not have adequate financial resources to meet its obligations under the reimbursement agreement, the Company may be liable for more than its proportionate share, up to its maximum recourse exposure, which is the full amount covered by the joint and several guarantee. The maintenance guarantees only apply if the value of

 

12


the collateral (generally land and improvements) is less than a specified percentage of the loan balance. If the Company is required to make a payment under a maintenance guarantee to bring the value of the collateral above the specified percentage of the loan balance, the payment would constitute a capital contribution or loan to the Lennar Homebuilding unconsolidated entity and increase the Company’s investment in the unconsolidated entity and its share of any funds the unconsolidated entity distributes. As of February 29, 2012, the Company does not have maintenance guarantees related to its Lennar Homebuilding unconsolidated entities.

In connection with many of the loans to Lennar Homebuilding unconsolidated entities, the Company and its joint venture partners (or entities related to them) have been required to give guarantees of completion to the lenders. Those completion guarantees may require that the guarantors complete the construction of the improvements for which the financing was obtained. If the construction is to be done in phases, the guarantee generally is limited to completing only the phases as to which construction has already commenced and for which loan proceeds were used.

During the three months ended February 29, 2012, there were other loan paydowns of $3.4 million. During the three months ended February 28, 2011, there were: (1) payments of $1.7 million under the Company’s maintenance guarantees and (2) other loan paydowns of $0.6 million, a portion of which related to amounts paid under the Company’s repayment guarantees. During the three months ended February 29, 2012 and February 28, 2011, there were no payments under completion guarantees.

As of February 29, 2012, the fair values of the repayment guarantees and completion guarantees were not material. The Company believes that as of February 29, 2012, in the event it becomes legally obligated to perform under a guarantee of the obligation of a Lennar Homebuilding unconsolidated entity due to a triggering event under a guarantee, most of the time the collateral should be sufficient to repay at least a significant portion of the obligation or the Company and its partners would contribute additional capital into the venture. In certain instances, the Company has placed performance letters of credit and surety bonds with municipalities for its joint ventures (see Note 11).

The total debt of the Lennar Homebuilding unconsolidated entities in which the Company has investments was as follows:

 

(In thousands)    February 29,
2012
    November 30,
2011
 

The Company’s net recourse exposure

   $ 55,590        74,905   

Reimbursement agreements from partners

     24,627        33,795   
  

 

 

   

 

 

 

The Company’s maximum recourse exposure

   $ 80,217        108,700   
  

 

 

   

 

 

 

Non-recourse bank debt and other debt (partner’s share of several recourse)

   $ 122,806        149,937   

Non-recourse land seller debt or other debt

     26,376        26,391   

Non-recourse debt with completion guarantees

     471,053        441,770   

Non-recourse debt without completion guarantees

     195,303        233,829   
  

 

 

   

 

 

 

Non-recourse debt to the Company

     815,538        851,927   
  

 

 

   

 

 

 

Total debt

   $ 895,755        960,627   
  

 

 

   

 

 

 

The Company’s maximum recourse exposure as a % of total JV debt

     9     11
  

 

 

   

 

 

 

 

13


(4) Equity and Comprehensive Earnings (Loss)

The following table reflects the changes in equity attributable to both Lennar Corporation and the noncontrolling interests of its consolidated subsidiaries in which it has less than a 100% ownership interest for both the three months ended February 29, 2012 and February 28, 2011:

 

           Stockholders’ Equity        
(In thousands)    Total
Equity
    Class A
Common Stock
     Class B
Common Stock
     Additional Paid
in Capital
     Treasury
Stock
    Retained
Earnings
    Noncontrolling
Interests
 

Balance at November 30, 2011

   $ 3,303,525        16,910         3,298         2,341,079         (621,220     956,401        607,057   

Net earnings (including net loss attributable to noncontrolling interests)

     7,977        —           —           —           —          14,968        (6,991

Employee stock and directors plans

     11,646        46         —           6,078         5,522        —          —     

Amortization of restricted stock

     7,276        —           —           7,276         —          —          —     

Cash dividends

     (7,562     —           —           —           —          (7,562  

Receipts related to noncontrolling interests

     391        —           —           —           —          —          391   
  

 

 

   

 

 

    

 

 

    

 

 

    

 

 

   

 

 

   

 

 

 

Balance at February 29, 2012

   $ 3,323,253        16,956         3,298         2,354,433         (615,698     963,807        600,457   
  

 

 

   

 

 

    

 

 

    

 

 

    

 

 

   

 

 

   

 

 

 

 

           Stockholders’ Equity        
(In thousands)    Total
Equity
    Class A
Common Stock
     Class B
Common Stock
     Additional Paid
in Capital
     Treasury
Stock
    Retained
Earnings
    Noncontrolling
Interests
 

Balance at November 30, 2010

   $ 3,194,383        16,701         3,297         2,310,339         (615,496     894,108        585,434   

Net earnings (including net earnings attributable to noncontrolling interests)

     38,726        —           —           —           —          27,406        11,320   

Employee stock and directors plans

     6,123        29         1         6,093         —          —          —     

Amortization of restricted stock

     5,368        —           —           5,368         —          —          —     

Cash dividends

     (7,469     —           —           —           —          (7,469     —     

Receipts related to noncontrolling interests

     115        —           —           —           —          —          115   

Payments related to noncontrolling interests

     (4,789     —           —           —           —          —          (4,789

Lennar Homebuilding non-cash consolidations

     529        —           —           —           —          —          529   
  

 

 

   

 

 

    

 

 

    

 

 

    

 

 

   

 

 

   

 

 

 

Balance at February 28, 2011

   $ 3,232,986        16,730         3,298         2,321,800         (615,496     914,045        592,609   
  

 

 

   

 

 

    

 

 

    

 

 

    

 

 

   

 

 

   

 

 

 

Comprehensive earnings attributable to Lennar for both the three months ended February 29, 2012 and February 28, 2011 was the same as net earnings attributable to Lennar. Comprehensive earnings (loss) attributable to noncontrolling interests for both the three months ended February 29, 2012 and February 28, 2011 was the same as net earnings (loss) attributable to noncontrolling interests.

The Company has a stock repurchase program which permits the purchase of up to 20 million shares of its outstanding common stock. During the three months ended February 29, 2012 and February 28, 2011, there were no repurchases of common stock under the stock repurchase program. As of February 29, 2012, 6.2 million shares of common stock can be repurchased in the future under the program.

During the three months ended February 29, 2012, treasury stock decreased by 0.3 million Class A common shares due to activity related to the Company’s equity compensation plan.

 

14


(5) Income Taxes

A reduction of the carrying amounts of deferred tax assets by a valuation allowance is required, if based on the available evidence, it is more likely than not that such assets will not be realized. Accordingly, the need to establish valuation allowances for deferred tax assets is assessed periodically based on the more-likely-than-not realization threshold criterion. In the assessment for a valuation allowance, appropriate consideration is given to all positive and negative evidence related to the realization of the deferred tax assets. This assessment considers, among other matters, the nature, frequency and severity of current and cumulative losses, forecasts of future profitability, the duration of statutory carryforward periods, the Company’s experience with loss carryforwards not expiring unused and tax planning alternatives.

At February 29, 2012, the Company continued its evaluation of whether the valuation allowance against its deferred tax assets was still needed. Although the Company’s performance and current positioning is bringing it closer to a conclusion that a valuation allowance is no longer needed, further evidence of a market recovery is needed to reverse the Company’s valuation allowance against its deferred tax assets.

Therefore, based upon all available positive and negative evidence, the Company concluded it still needed a valuation allowance against its deferred tax assets of $561.3 million at February 29, 2012. The valuation allowance against the Company’s deferred tax assets was $576.9 million at November 30, 2011. During the first quarter of fiscal 2012, the Company recorded a reversal of the deferred tax asset valuation allowance of $15.6 million primarily due to the net earnings generated during the period and an adjustment related to equity compensation. In future periods, the allowance could be reduced if sufficient positive evidence is present indicating that it is more likely than not that a portion or all of the Company’s deferred tax assets will be realized.

During the three months ended February 29, 2012, the Company recorded a tax benefit of $1.5 million primarily related to a refund claim for certain losses carried back to a prior year.

At February 29, 2012 and November 30, 2011, the Company had $18.0 million and $36.7 million of gross unrecognized tax benefits. If the Company were to recognize its gross unrecognized tax benefits as of February 29, 2012, $9.1 million would affect the Company’s effective tax rate. The Company expects the total amount of unrecognized tax benefits to decrease by $7.1 million within twelve months as a result of settlements with various taxing authorities.

During the three months ended February 29, 2012, the Company’s gross unrecognized tax benefits decreased by $18.7 million primarily as a result of the resolution of an IRS examination, which included a settlement for certain losses carried back to prior years and the settlement of certain tax accounting method items. There was no effect on the Company’s effective tax rate from the decrease in gross unrecognized tax benefits.

At February 29, 2012, the Company had $20.1 million accrued for interest and penalties, of which $0.3 million was recorded during the three months ended February 29, 2012, offset by a reduction of the accrual for interest and penalties of $0.2 million as a result of the settlement of a state tax issue. At November 30, 2011, the Company had $20.0 million accrued for interest and penalties.

During the three months ended February 29, 2012, the IRS closed its examination of fiscal years 2005 through 2008. The results of such examination were accrued for in prior periods, and there was no adverse effect on the Company’s financial statements during the first quarter of 2012. The IRS is currently examining the Company’s federal income tax returns for fiscal years 2009 through 2010, and certain state taxing authorities are examining various fiscal years. The final outcome of these examinations is not yet determinable. The statute of limitations for the Company’s major tax jurisdictions remains open for examination for fiscal year 2005 and subsequent years.

 

15


(6) Earnings Per Share

Basic earnings per share is computed by dividing net earnings attributable to common stockholders by the weighted average number of common shares outstanding for the period. Diluted earnings per share reflects the potential dilution that could occur if securities or other contracts to issue common stock were exercised or converted into common stock or resulted in the issuance of common stock that then shared in the earnings of the Company.

All outstanding nonvested shares that contain non-forfeitable rights to dividends or dividend equivalents that participate in undistributed earnings with common stock are considered participating securities and are included in computing earnings per share pursuant to the two-class method. The two class method is an earnings allocation formula that determines earnings per share for each class of common stock and participating securities according to dividends or dividend equivalents and participation rights in undistributed earnings. The Company’s restricted common stock (“nonvested shares”) are considered participating securities.

Basic and diluted earnings per share were calculated as follows:

 

     Three Months Ended  
(In thousands, except per share amounts)    February 29,
2012
     February 28,
2011
 

Numerator:

     

Net earnings attributable to Lennar

   $ 14,968         27,406   

Less: distributed earnings allocated to nonvested shares

     115         101   

Less: undistributed earnings allocated to nonvested shares

     113         269   
  

 

 

    

 

 

 

Numerator for basic earnings per share

     14,740         27,036   
  

 

 

    

 

 

 

Plus: interest on 2.00% convertible senior notes due 2020 and 3.25% convertible senior notes due 2021

     2,911         871   

Plus: undistributed earnings allocated to convertible shares

     113         269   

Less: undistributed earnings reallocated to convertible shares

     137         265   
  

 

 

    

 

 

 

Numerator for diluted earnings per share

   $ 17,627         27,911   
  

 

 

    

 

 

 

Denominator:

     

Denominator for basic earnings per share - weighted average common shares outstanding

     185,997         184,155   

Effect of dilutive securities:

     

Shared based payments

     883         699   

2.00% convertible senior notes due 2020 and 3.25% convertible senior notes due 2021

     26,933         10,005   
  

 

 

    

 

 

 

Denominator for diluted earnings per share - weighted average common shares outstanding

     213,813         194,859   
  

 

 

    

 

 

 

Basic earnings per share

   $ 0.08         0.15   
  

 

 

    

 

 

 

Diluted earnings per share

   $ 0.08         0.14   
  

 

 

    

 

 

 

Options to purchase 0.3 million and 1.2 million shares, respectively, in total of Class A and Class B common stock were outstanding and anti-dilutive for the three months ended February 29, 2012 and February 28, 2011.

 

16


(7) Lennar Financial Services Segment

The assets and liabilities related to the Lennar Financial Services segment were as follows:

 

(In thousands)    February 29,
2012
     November 30,
2011
 

Assets:

     

Cash and cash equivalents

   $ 56,555         55,454   

Restricted cash

     16,135         16,319   

Receivables, net (1)

     106,880         220,546   

Loans held-for-sale (2)

     272,760         303,780   

Loans held-for-investment, net

     23,563         24,262   

Investments held-to-maturity

     48,771         48,860   

Goodwill

     34,046         34,046   

Other (3)

     38,100         36,488   
  

 

 

    

 

 

 
   $ 596,810         739,755   
  

 

 

    

 

 

 

Liabilities:

     

Notes and other debts payable

   $ 259,449         410,134   

Other (4)

     149,957         152,601   
  

 

 

    

 

 

 
   $ 409,406         562,735   
  

 

 

    

 

 

 

 

(1) Receivables, net primarily relate to loans sold to investors for which the Company had not yet been paid as of February 29, 2012 and November 30, 2011, respectively.
(2) Loans held-for-sale relate to unsold loans carried at fair value.
(3) Other assets include mortgage loan commitments carried at fair value of $5.6 million and $4.2 million, respectively, as of February 29, 2012 and November 30, 2011.
(4) Other liabilities include $76.8 million and $75.4 million, respectively, of certain of the Company’s self-insurance reserves related to general liability and workers’ compensation. Other liabilities also include forward contracts carried at fair value of $0.7 million and $1.4 million as of February 29, 2012 and November 30, 2011, respectively.

At February 29, 2012, the Lennar Financial Services segment had a 364-day warehouse repurchase facility with a maximum aggregate commitment of $100 million and an additional uncommitted amount of $50 million that matures in February 2013, and another 364-day warehouse repurchase facility with a maximum aggregate commitment of $175 million that matures in July 2012. As of February 29, 2012, the maximum aggregate commitment and uncommitted amount under these facilities totaled $275 million and $50 million, respectively.

The Lennar Financial Services segment uses these facilities to finance its lending activities until the mortgage loans are sold to investors and expects the facilities to be renewed or replaced with other facilities when they mature. Borrowings under the facilities were $259.4 million and $410.1 million, respectively, at February 29, 2012 and November 30, 2011, and were collateralized by mortgage loans and receivables on loans sold to investors but not yet paid for with outstanding principal balances of $271.8 million and $431.6 million, respectively, at February 29, 2012 and November 30, 2011. If the facilities are not renewed, the borrowings under the lines of credit will be paid off by selling the mortgage loans held-for-sale to investors and by collecting on receivables on loans sold but not yet paid. Without the facilities, the Lennar Financial Services segment would have to use cash from operations and other funding sources to finance its lending activities.

Substantially all of the loans the Lennar Financial Services segment originates are sold within a short period in the secondary mortgage market on a servicing released, non-recourse basis. After the loans are sold, the Company retains potential liability for possible claims by purchasers that it breached certain limited industry-standard representations and warranties in the loan sale agreement. There has been an increased industry-wide effort by purchasers to defray their losses in an unfavorable economic environment by purporting to have found inaccuracies related to sellers’ representations and warranties in particular loan sale agreements. The Company’s mortgage operations have established reserves for possible losses associated with mortgage loans previously originated and sold to investors. The Company establishes reserves for such possible losses based upon, among other things, an analysis of repurchase

 

17


requests received, an estimate of potential repurchase claims not yet received and actual past repurchases and losses through the disposition of affected loans, as well as previous settlements. While the Company believes that it has adequately reserved for known losses and projected repurchase requests, given the volatility in the mortgage industry and the uncertainty regarding the ultimate resolution of these claims, if either actual repurchases or the losses incurred resolving those repurchases exceed the Company’s expectations, additional recourse expense may be incurred. Loan origination liabilities are included in Lennar Financial Services’ liabilities in the condensed consolidated balance sheets. The activity in the Company’s loan origination liabilities was as follows:

 

     Three Months Ended  
(In thousands)    February 29,
2012
    February 28,
2011
 

Loan origination liabilities, beginning of period

   $ 6,050        9,872   

Provision for losses during the period

     93        70   

Adjustments to pre-existing provisions for losses from changes in estimates

     8        (70

Payments/settlements

     (190     —     
  

 

 

   

 

 

 

Loan origination liabilities, end of period

   $ 5,961        9,872   
  

 

 

   

 

 

 

For Lennar Financial Services loans held-for-investment, net, a loan is deemed impaired when, based on current information and events, it is probable that the Company will be unable to collect all amounts due according to the contractual terms of the loan agreement. Interest income is not accrued or recognized on impaired loans unless payment is received. Impaired loans are written-off if and when the loan is no longer secured by collateral. The total unpaid principal balance of the impaired loans as of February 29, 2012 and November 30, 2011 was $8.5 million and $8.8 million, respectively. At February 29, 2012, the recorded investment in the impaired loans with a valuation allowance was $3.4 million, net of an allowance of $5.1 million. At November 30, 2011, the recorded investment in the impaired loans with a valuation allowance was $3.7 million, net of an allowance of $5.1 million. The average recorded investment in impaired loans totaled $3.6 million and $4.1 million, respectively, for the three months ended February 29, 2012 and February 28, 2011.

 

18


(8) Rialto Investments Segment

The assets and liabilities related to the Rialto segment were as follows:

 

(In thousands)    February 29,
2012
     November 30,
2011
 

Assets:

     

Cash and cash equivalents

   $ 74,186         83,938   

Defeasance cash to retire notes payable

     111,223         219,386   

Loans receivable, net

     649,791         713,354   

Real estate owned - held-for-sale

     101,579         143,677   

Real estate owned - held-and-used, net

     630,570         582,111   

Investments in unconsolidated entities

     149,735         124,712   

Investments held-to-maturity

     14,313         14,096   

Other

     20,324         15,874   
  

 

 

    

 

 

 
   $ 1,751,721         1,897,148   
  

 

 

    

 

 

 

Liabilities:

     

Notes payable

   $ 595,515         765,541   

Other

     16,629         30,579   
  

 

 

    

 

 

 
   $ 612,144         796,120   
  

 

 

    

 

 

 

Rialto’s operating earnings for the three months ended February 29, 2012 and February 28, 2011 was as follows:

 

     Three Months Ended  
(In thousands)    February 29,
2012
    February 28,
2011
 

Revenues

   $ 32,208        33,623   

Costs and expenses

     33,370        28,349   

Rialto Investments equity in earnings from unconsolidated entities

     18,458        4,525   

Rialto Investments other income (expense), net

     (12,240     13,203   
  

 

 

   

 

 

 

Operating earnings (1)

   $ 5,056        23,002   
  

 

 

   

 

 

 

 

(1) Operating earnings for the three months ended February 29, 2012 and February 28, 2011 includes net earnings (loss) attributable to noncontrolling interests of ($4.3) million and $12.0 million respectively.

Loans Receivable

In February 2010, the Rialto segment acquired indirectly 40% managing member equity interests in two limited liability companies (“LLCs”), in partnership with the FDIC. The LLCs hold performing and non-performing loans formerly owned by 22 failed financial institutions and when the Rialto segment acquired its interests in the LLCs, the two portfolios consisted of approximately 5,500 distressed residential and commercial real estate loans (“FDIC Portfolios”). The FDIC retained 60% equity interests in the LLCs and provided $626.9 million of financing with 0% interest, which is non-recourse to the Company and the LLCs. As of February 29, 2012 and November 30, 2011, the notes payable balance was $470.0 million and $626.9 million, respectively; however, $111.2 million and $219.4 million, respectively, of cash collections on loans in excess of expenses were deposited in a defeasance account, established for the repayment of the notes payable, under the agreement with the FDIC. The funds in the defeasance account are being and will be used to retire the notes payable upon their maturity. During the three months ended February 29, 2012, the LLCs retired $156.9 million principal amount of the notes payable under the agreement with the FDIC through the defeasance account.

The LLCs met the accounting definition of VIEs and since the Company was determined to be the primary beneficiary, the Company consolidated the LLCs. At February 29, 2012, these consolidated LLCs had total combined assets and liabilities of $1.3 billion and $0.5 billion, respectively. At November 30, 2011, these consolidated LLCs had total combined assets and liabilities of $1.4 billion and $0.7 billion, respectively.

 

19


In September 2010, the Rialto segment acquired approximately 400 distressed residential and commercial real estate loans (“Bank Portfolios”) and over 300 REO properties from three financial institutions. The Company paid $310 million for the distressed real estate and real estate related assets of which $124 million was financed through a 5-year senior unsecured note provided by one of the selling institutions. During the three months ended February 29, 2012, the Company retired $13.0 million principal amount of the 5-year senior unsecured note.

The following table displays the loans receivable by aggregate collateral type:

 

(In thousands)    February 29,
2012
     November 30,
2011
 

Land

   $ 332,706         348,234   

Single family homes

     139,152         152,265   

Commercial properties

     145,375         172,799   

Multi-family homes

     24,217         28,108   

Other

     8,341         11,948   
  

 

 

    

 

 

 

Loans receivable

   $ 649,791         713,354   
  

 

 

    

 

 

 

With regard to loans accounted for under ASC 310-30, Loans and Debt Securities Acquired with Deteriorated Credit Quality, (“ASC 310-30”), the Rialto segment estimated the cash flows, at acquisition, it expected to collect on the FDIC Portfolios and Bank Portfolios. In accordance with ASC 310-30, the difference between the contractually required payments and the cash flows expected to be collected at acquisition is referred to as the nonaccretable difference. This difference is neither accreted into income nor recorded on the Company’s condensed consolidated balance sheets. The excess of cash flows expected to be collected over the cost of the loans acquired is referred to as the accretable yield and is recognized in interest income over the remaining life of the loans using the effective yield method.

The Rialto segment periodically evaluates its estimate of cash flows expected to be collected on its FDIC Portfolios and Bank Portfolios. These evaluations require the continued use of key assumptions and estimates, similar to those used in the initial estimate of fair value of the loans to allocate purchase price. Subsequent changes in the estimated cash flows expected to be collected may result in changes in the accretable yield and nonaccretable difference or reclassifications from nonaccretable yield to accretable yield. Increases in the cash flows expected to be collected will generally result in an increase in interest income over the remaining life of the loan or pool of loans. Decreases in expected cash flows due to further credit deterioration will generally result in an impairment charge recognized as a provision for loan losses, resulting in an increase to the allowance for loan losses.

The outstanding balance and carrying value of loans accounted for under ASC 310-30 was as follows:

 

(In thousands)    February 29,
2012
     November 30,
2011
 

Outstanding principal balance

   $ 1,211,492         1,331,094   

Carrying value

   $ 586,264         639,642   

 

20


The activity in the accretable yield for the FDIC Portfolios and Bank Portfolios was as follows:

 

(In thousands)    February 29,
2012
    February 28,
2011
 

Accretable yield, beginning of period

   $ 209,480        396,311   

Additions

     1,838        11,443   

Deletions

     (10,635     (35,065

Accretions

     (21,403     (32,343
  

 

 

   

 

 

 

Accretable yield, end of period

   $ 179,280        340,346   
  

 

 

   

 

 

 

Additions primarily represent reclasses from nonaccretable yield to accretable yield on the portfolios. Deletions represent disposal of loans, which includes foreclosure of underlying collateral and result in the removal of the loans from the accretable yield portfolios.

When forecasted principal and interest cannot be reasonably estimated at the loan acquisition date, management classifies the loan as nonaccrual and accounts for these assets in accordance with ASC 310-10, Receivables (“ASC 310-10”). When a loan is classified as nonaccrual, any subsequent cash receipt is accounted for using the cost recovery method. In accordance with ASC 310-10, a loan is considered impaired when based on current information and events it is probable that all amounts due according to the contractual terms of the loan agreement will not be collected. Although these loans met the definition of ASC 310-10, these loans were not considered impaired relative to the Company’s recorded investment at the time of acquisition since they were acquired at a substantial discount to their unpaid principal balance. A provision for loan losses is recognized when the recorded investment in the loan is in excess of its fair value. The fair value of the loan is determined by using either the present value of expected future cash flows discounted at the loan’s effective interest rate or the fair value of the collateral less estimated costs to sell. As of February 29, 2012 and November 30, 2011, the Company had an allowance for loan losses against the nonaccrual loans of $0.1 million and $0.8 million, respectively.

The following tables represent nonaccrual loans in the FDIC Portfolios and Bank Portfolios accounted for under ASC 310-10 aggregated by collateral type:

February 29, 2012

 

            Recorded Investment         
(In thousands)    Unpaid
Principal Balance
     With
Allowance
     Without
Allowance
     Total  Recorded
Investment
 

Land

   $ 66,002         —           22,910         22,910   

Single family homes

     28,700         1,054         10,736         11,790   

Commercial properties

     40,126         —           23,681         23,681   

Multi-family homes

     10,928         —           5,146         5,146   
  

 

 

    

 

 

    

 

 

    

 

 

 

Loans receivable

   $ 145,756         1,054         62,473         63,527   
  

 

 

    

 

 

    

 

 

    

 

 

 

November 30, 2011

 

            Recorded Investment         
(In thousands)    Unpaid
Principal  Balance
     With
Allowance
     Without
Allowance
     Total  Recorded
Investment
 

Land

   $ 75,557         —           24,692         24,692   

Single family homes

     55,377         1,956         13,235         15,191   

Commercial properties

     48,293         2,660         24,434         27,094   

Multi-family homes

     16,750         —           6,735         6,735   

Other

     405         —           —           —     
  

 

 

    

 

 

    

 

 

    

 

 

 

Loans receivable

   $ 196,382         4,616         69,096         73,712   
  

 

 

    

 

 

    

 

 

    

 

 

 

The average recorded investment in impaired loans totaled approximately $69 million and $224 million, respectively, for the three months ended February 29, 2012 and February 28, 2011.

 

21


The loans receivable portfolios consist of loans acquired at a discount. Based on the nature of these loans, the portfolios are managed by assessing the risks related to the likelihood of collection of payments from borrowers and guarantors, as well as monitoring the value of the underlying collateral. The following are the risk categories for the loans receivable portfolios:

Accrual — Loans in which forecasted cash flows under the loan agreement, as it might be modified from time to time, can be reasonably estimated at the date of acquisition. The risk associated with loans in this category relates to the possible default by the borrower with respect to principal and interest payments and the possible decline in value of the underlying collateral and thus, both could cause a decline in the forecasted cash flows used to determine accretable yield income and the recognition of an impairment through an allowance for loan losses.

Nonaccrual — Loans in which forecasted principal and interest could not be reasonably estimated at the date of acquisition. Although the Company believes the recorded investment balance will ultimately be realized, the risk of nonaccrual loans relates to a decline in the value of the collateral securing the outstanding obligation and the recognition of an impairment through an allowance for loan losses if the recorded investment in the loan exceeds the fair value of the collateral less estimated cost to sell. As of February 29, 2012 and November 30, 2011, the Company had an allowance on these loans of $0.1 million and $0.8 million, respectively. During the three months ended February 29, 2012, the Company recorded $0.9 million of provision for loan losses offset by charge-offs of $1.6 million upon foreclosure of the loans.

Accrual and nonaccrual loans receivable by risk categories were as follows:

February 29, 2012

 

(In thousands)    Accrual      Nonaccrual      Total  

Land

   $ 309,796         22,910         332,706   

Single family homes

     127,362         11,790         139,152   

Commercial properties

     121,694         23,681         145,375   

Multi-family homes

     19,071         5,146         24,217   

Other

     8,341         —           8,341   
  

 

 

    

 

 

    

 

 

 

Loans receivable

   $ 586,264         63,527         649,791   
  

 

 

    

 

 

    

 

 

 

November 30, 2011

 

(In thousands)    Accrual      Nonaccrual      Total  

Land

   $ 323,542         24,692         348,234   

Single family homes

     137,074         15,191         152,265   

Commercial properties

     145,705         27,094         172,799   

Multi-family homes

     21,373         6,735         28,108   

Other

     11,948         —           11,948   
  

 

 

    

 

 

    

 

 

 

Loans receivable

   $ 639,642         73,712         713,354   
  

 

 

    

 

 

    

 

 

 

In order to assess the risk associated with each risk category, the Rialto segment evaluates the forecasted cash flows and the value of the underlying collateral securing loans receivable on a quarterly basis or when an event occurs that suggest a decline in the collateral’s fair value.

Real Estate Owned

The acquisition of properties acquired through, or in lieu of, loan foreclosure are reported within the condensed consolidated balance sheets as REO held-and-used, net and REO held-for-sale. When a property is determined to be held-and-used, net, the asset is recorded at fair value and depreciated over its useful life using the straight line method. When certain criteria set forth in ASC 360, Property, Plant and Equipment, are met; the property is classified as held-for-sale. When a real estate asset is classified as held-for-sale, the property is recorded at the lower of its cost basis or fair value less estimated costs to sell. The fair value of REO held-for-sale are determined in part by placing reliance on third party appraisals of the properties and/or internally prepared analyses of recent offers or prices on comparable properties in the proximate vicinity. During the three months ended February 29, 2012, the Rialto segment recorded $3.8 million of REO impairments. During the three months ended February 28, 2011, the Rialto segment recorded no REO impairments.

 

22


The following tables present the activity in REO for the three months ended February 29, 2012 and February 28, 2011:

 

     Three Months Ended  
     February 29,     February 28,  
(In thousands)    2012     2011  

REO - held-for-sale, beginning of period

   $ 143,677        250,286   

Additions

     1,134        185,641   

Improvements

     3,963        2,718   

Sales

     (36,844     (7,526

Impairments

     (1,240     —     

Transfers to held-and-used, net (1)

     (9,111     —     
  

 

 

   

 

 

 

REO - held-for-sale, end of period

   $ 101,579        431,119   
  

 

 

   

 

 

 

 

     Three Months Ended  
     February 29,     February 28,  
(In thousands)    2012     2011  

REO - held-and-used, net, beginning of period

   $ 582,111        7,818   

Additions

     46,241        7,343   

Sales

     (981     —     

Impairments

     (2,597     —     

Depreciation

     (3,315     (35

Transfers from held-for-sale (1)

     9,111        —     
  

 

 

   

 

 

 

REO - held-and-used, net, end of period

   $ 630,570          15,126   
  

 

 

   

 

 

 

 

(1) During the three months ended February 29, 2012, the Rialto segment transferred certain properties to REO held-and-used, net from REO held-for-sale as a result of changes in the disposition strategy of the real estate assets. The Rialto segment plans to hold these properties longer term and dispose of them when market conditions improve.

For the three months ended February 29, 2012 and February 28, 2011, the Company recorded approximately $5.8 million and $17.4 million, respectively, of gains primarily from acquisitions of REO through foreclosure. These gains are recorded in Rialto Investments other income (expense), net.

Investments

In 2010, the Rialto segment invested in approximately $43 million of non-investment grade commercial mortgage-backed securities (“CMBS”) for $19.4 million, representing a 55% discount to par value. The CMBS have a stated and assumed final distribution date of November 2020 and a stated maturity date of October 2057. The Rialto segment reviews changes in estimated cash flows periodically, to determine if other-than-temporary impairment has occurred on its investment securities. Based on the Rialto segment’s assessment, no impairment charges were recorded during both the three months ended February 29, 2012 and February 28, 2011. The carrying value of the investment securities at February 29, 2012 and November 30, 2011, was $14.3 million and $14.1 million, respectively. The Rialto segment classified these securities as held-to-maturity based on its intent and ability to hold the securities until maturity.

In addition to the acquisition and management of the FDIC Portfolios and Bank Portfolios, an affiliate in the Rialto segment is a sub-advisor to the AllianceBernstein L.P. (“AB”) fund formed under the Federal government’s Public-Private Investment Program (“PPIP”) to purchase real estate related securities from banks and other financial institutions. The sub-advisor receives management fees for sub-advisory services. The Company committed to invest $75 million, of which the remaining outstanding commitment as of February 29, 2012 was $7.5 million, of the total equity commitments of approximately $1.2 billion made by private investors in this fund, and the U.S Treasury has committed to a matching amount of approximately $1.2 billion of equity in the fund, as well as agreed to extend up to approximately $2.3 billion of debt financing. As of February 29, 2012 and November 30, 2011, the carrying value of the Company’s investment in the AB PPIP fund was $75.5 million and $65.2 million, respectively.

 

23


In 2010, the Rialto segment completed its first closing of a real estate investment fund (the “Fund”) with initial equity commitments of approximately $300 million (including $75 million committed by the Company, of which the remaining outstanding commitment as of February 29, 2012 was $20.5 million). The Fund was determined to have the attributes of an investment company in accordance with ASC 946, Financial Services – Investment Companies, the attributes of which are different from the attributes that would cause a company to be an investment company for purposes of the Investment Company Act of 1940. As a result, the Fund’s assets and liabilities are recorded at fair value with increases/decreases in fair value recorded in the statement of operations of the Fund, the Company’s share of which are recorded in the Rialto Investments equity in earnings from unconsolidated entities financial statement line item.

As of February 29, 2012, the equity commitments of the Fund were $700 million (including the $75 million committed by the Company). During the three months ended February 29, 2012, the Company contributed $7.3 million to the Fund. As of February 29, 2012 and November 30, 2011, the carrying value of the Company’s investment in the Fund was $65.0 million and $50.1 million, respectively. For the three months ended February 29, 2012, the Company’s share of earnings from the Fund was $7.6 million.

Additionally, another subsidiary in the Rialto segment has approximately a 5% investment in a service and infrastructure provider to the residential home loan market (the “Servicer Provider”), which provides services to the consolidated LLCs, among others. As of February 29, 2012 and November 30, 2011, the carrying value of the Company’s investment in the Servicer Provider was $8.6 million and $8.8 million, respectively.

 

24


Summarized condensed financial information on a combined 100% basis related to Rialto’s investments in unconsolidated entities that are accounted for by the equity method was as follows:

Balance Sheets

 

     February 29,      November 30,  
(In thousands)    2012      2011  

Assets:

     

Cash and cash equivalents

   $ 50,769         60,936   

Loans receivable

     341,470         274,213   

Real estate owned

     88,982         47,204   

Investment securities

     4,517,824         4,336,418   

Other assets

     81,109         171,196   
  

 

 

    

 

 

 
   $ 5,080,154         4,889,967   
  

 

 

    

 

 

 

Liabilities and equity:

     

Accounts payable and other liabilities

   $ 124,044         320,353   

Notes payable

     54,655         40,877   

Partner loans

     163,320         137,820   

Debt due to the U.S. Treasury

     2,044,950         2,044,950   

Equity

     2,693,185         2,345,967   
  

 

 

    

 

 

 
   $ 5,080,154         4,889,967   
  

 

 

    

 

 

 

Statements of Operations

 

     Three Months Ended  
     February 29,      February 28,  
(In thousands)    2012      2011  

Revenues

   $ 122,405         116,888   

Costs and expenses

     51,185         51,471   

Other income, net (1)

     266,440         86,788   
  

 

 

    

 

 

 

Net earnings of unconsolidated entities

   $ 337,660         152,205   
  

 

 

    

 

 

 

Rialto Investments equity in earnings from unconsolidated entities

   $ 18,458         4,525   
  

 

 

    

 

 

 

 

(1) Other income, net for the three months ended February 29, 2012 and February 28, 2011 includes the AB PPIP Fund’s mark-to-market unrealized gains, of which the Company’s portion is a small percentage.

 

(9) Lennar Homebuilding Cash and Cash Equivalents

Cash and cash equivalents as of February 29, 2012 and November 30, 2011 included $12.4 million and $26.1 million, respectively, of cash held in escrow for approximately three days.

 

(10) Lennar Homebuilding Restricted Cash

Restricted cash consists of customer deposits on home sales held in restricted accounts until title transfers to the homebuyer, as required by the state and local governments in which the homes were sold.

 

25


(11) Lennar Homebuilding Senior Notes and Other Debts Payable

 

     February 29,      November 30,  
(Dollars in thousands)    2012      2011  

5.95% senior notes due 2013

   $ 266,855         266,855   

5.50% senior notes due 2014

     248,967         248,967   

5.60% senior notes due 2015

     500,885         500,999   

6.50% senior notes due 2016

     249,835         249,819   

12.25% senior notes due 2017

     394,067         393,700   

6.95% senior notes due 2018

     247,733         247,598   

2.00% convertible senior notes due 2020

     276,500         276,500   

2.75% convertible senior notes due 2020

     391,741         388,417   

3.25% convertible senior notes due 2021

     400,000         350,000   

Mortgages notes on land and other debt

     496,354         439,904   
  

 

 

    

 

 

 
   $ 3,472,937         3,362,759   
  

 

 

    

 

 

 

At February 29, 2012, the Company had a $150 million Letter of Credit and Reimbursement Agreement with certain financial institutions, which may be increased to $200 million, but for which there are currently no commitments for the additional $50 million. In addition, at February 29, 2012, the Company had a $50 million Letter of Credit and Reimbursement Agreement with certain financial institutions that had a $50 million accordion feature for which there are currently no commitments, and a $200 million Letter of Credit Facility with a financial institution. The Company believes it was in compliance with its debt covenants at February 29, 2012.

The Company’s performance letters of credit outstanding were $70.6 million and $68.0 million, respectively, at February 29, 2012 and November 30, 2011. The Company’s financial letters of credit outstanding were $197.7 million and $199.3 million, respectively, at February 29, 2012 and November 30, 2011. Performance letters of credit are generally posted with regulatory bodies to guarantee the Company’s performance of certain development and construction activities, and financial letters of credit are generally posted in lieu of cash deposits on option contracts, for insurance risks, credit enhancements and as other collateral. Additionally, at February 29, 2012, the Company had outstanding performance and surety bonds related to site improvements at various projects (including certain projects in the Company’s joint ventures) of $607.3 million. Although significant development and construction activities have been completed related to these site improvements, these bonds are generally not released until all development and construction activities are completed. As of February 29, 2012, there were approximately $334.3 million, or 55%, of anticipated future costs to complete related to these site improvements. The Company does not presently anticipate any draws upon these bonds, but if any such draws occur, the Company does not believe they would have a material effect on its financial position, results of operations or cash flows.

In November 2011, the Company issued $350.0 million aggregate principal amount of 3.25% convertible senior notes due 2021 (the “3.25% Convertible Senior Notes”). During the three months ended February 29, 2012, the initial purchasers of the 3.25% Convertible Senior Notes purchased an additional $50.0 million aggregate principal amount to cover over-allotments. At February 29, 2012 and November 30, 2011, the carrying and principal amount of the 3.25% Convertible Senior Notes was $400.0 million and $350.0 million, respectively. The 3.25% Convertible Senior Notes are convertible into shares of Class A common stock at any time prior to maturity or redemption at the initial conversion rate of 42.5555 shares of Class A common stock per $1,000 principal amount of the 3.25% Convertible Senior Notes or 17,022,200 Class A common shares if all the 3.25% Convertible Senior Notes are converted, which is equivalent to an initial conversion price of approximately $23.50 per share of Class A common stock, subject to anti-dilution adjustments. The shares are included in the calculation of diluted earnings per share. Holders of the 3.25% Convertible Senior Notes have the right to require the Company to repurchase them for cash equal to 100% of their principal amount, plus accrued but unpaid interest on November 15, 2016. The Company has the right to redeem the 3.25% Convertible Senior Notes at any time on or after November 20, 2016 for 100% of their principal amount, plus accrued but unpaid interest.

The 2.75% convertible senior notes due 2020 (the “2.75% Convertible Senior Notes”) are convertible into cash, shares of Class A common stock or a combination of both, at the Company’s election. However, it is the Company’s intent to settle the face value of the 2.75% Convertible Senior Notes in cash. The shares

 

26


are not included in the calculation of diluted earnings per share primarily because it is the Company’s intent to settle the face value of the 2.75% Convertible Senior Notes in cash and the Company’s volume weighted average stock price for the first quarter of 2012 did not exceed the conversion price. Holders may convert the 2.75% Convertible Senior Notes at the initial conversion rate of 45.1794 shares of Class A common stock per $1,000 principal amount or 20,150,012 Class A common shares if all the 2.75% Convertible Senior Notes are converted, which is equivalent to an initial conversion price of approximately $22.13 per share of Class A common stock. Holders of the 2.75% Convertible Senior Notes have the right to require the Company to repurchase them for cash equal to 100% of their principal amount, plus accrued but unpaid interest, on December 15, 2015. The Company has the right to redeem the 2.75% Convertible Senior Notes at any time on or after December 20, 2015 for 100% of their principal amount, plus accrued but unpaid interest.

Certain provisions under ASC 470, Debt, require the issuer of certain convertible debt instruments that may be settled in cash on conversion to separately account for the liability and equity components of the instrument in a manner that reflects the issuer’s non-convertible debt borrowing rate. The Company has applied these provisions to its 2.75% Convertible Senior Notes. At both February 29, 2012 and November 30, 2011, the principal amount of the 2.75% Convertible Senior Notes was $446.0 million. At February 29, 2012 and November 30, 2011, the carrying amount of the equity component included in stockholders’ equity was $54.3 million and $57.6 million, respectively, and the net carrying amount of the 2.75% Convertible Senior Notes included in Lennar Homebuilding senior notes and other debts payable was $391.7 million and $388.4 million, respectively.

The 2.00% convertible senior notes due 2020 (the “2.00% Convertible Senior Notes”) are convertible into shares of Class A common stock at the initial conversion rate of 36.1827 shares of Class A common stock per $1,000 principal amount of the 2.00% Convertible Senior Notes or 10,004,517 Class A common shares if all the 2.00% Convertible Senior Notes are converted, which is equivalent to an initial conversion price of approximately $27.64 per share of Class A common stock, subject to anti-dilution adjustments. The shares are included in the calculation of diluted earnings per share. At both February 29, 2012 and November 30, 2011, the carrying and principal amount of the 2.00% Convertible Senior Notes was $276.5 million. Holders of the 2.00% Convertible Senior Notes have the right to require the Company to repurchase them for cash equal to 100% of their principal amount, plus accrued but unpaid interest, on each of December 1, 2013 and December 1, 2015. The Company has the right to redeem the 2.00% Convertible Senior Notes at any time on or after December 1, 2013 for 100% of their principal amount, plus accrued but unpaid interest.

 

27


(12) Product Warranty

Warranty and similar reserves for homes are established at an amount estimated to be adequate to cover potential costs for materials and labor with regard to warranty-type claims expected to be incurred subsequent to the delivery of a home. Reserves are determined based on historical data and trends with respect to similar product types and geographical areas. The Company regularly monitors the warranty reserve and makes adjustments to its pre-existing warranties in order to reflect changes in trends and historical data as information becomes available. Warranty reserves are included in other liabilities in the accompanying condensed consolidated balance sheets. The activity in the Company’s warranty reserve was as follows:

 

     Three Months Ended  
     February 29,     February 28,  
(In thousands)    2012     2011  

Warranty reserve, beginning of period

   $ 88,120        109,179   

Warranties issued during the period

     6,855        4,739   

Adjustments to pre-existing warranties from changes in estimates

     1,367        (2,727

Payments

     (10,625     (7,215
  

 

 

   

 

 

 

Warranty reserve, end of period

   $ 85,717        103,976   
  

 

 

   

 

 

 

As of February 29, 2012, the Company has identified approximately 1,000 homes delivered in Florida primarily during its 2006 and 2007 fiscal years that are confirmed to have defective Chinese drywall and resulting damage. This represents a small percentage of homes the Company delivered nationally (1.2%) during those fiscal years. Defective Chinese drywall is an industry-wide issue as other homebuilders have publicly disclosed that they have experienced similar issues with defective Chinese drywall.

Based on its efforts to date, the Company has not identified defective Chinese drywall in homes delivered by the Company outside of Florida. The Company is continuing its investigation of homes delivered during the relevant time period in order to determine whether there are additional homes, not yet inspected, with defective Chinese drywall and resulting damage. If the outcome of the Company’s inspections identifies more homes than the Company has estimated to have defective Chinese drywall, it might require an increase in the Company’s warranty reserve in the future. The Company has replaced defective Chinese drywall when it has been found in homes the Company has built.

Through February 29, 2012, the Company has accrued $82.2 million of warranty reserves related to homes confirmed as having defective Chinese drywall, as well as an estimate for homes not yet inspected that may contain Chinese drywall. No additional amount was accrued during the three months ended February 29, 2012. As of February 29, 2012 and November 30, 2011, the warranty reserve related to Chinese drywall, net of payments, was $7.1 million and $9.1 million, respectively. The Company has received, and continues to seek, reimbursement from its subcontractors, insurers and others for costs the Company has incurred or expects to incur to investigate and repair defective Chinese drywall and resulting damage. During the three months ended February 29, 2012, the Company received an immaterial amount of payments through third party recoveries relative to the costs it has incurred and expects to incur remedying the homes confirmed and estimated to have defective Chinese drywall and resulting damage. During the three months ended February 28, 2011, the Company received payments of $1.3 million through third party recoveries relative to the costs it has incurred and expects to incur remedying the homes confirmed and estimated to have defective Chinese drywall and resulting damage.

 

28


(13) Share-Based Payment

During the three months ended February 29, 2012, the Company did not grant any stock options and granted an immaterial number of nonvested shares. During the three months ended February 28, 2011, the Company did not grant any stock options or nonvested shares. Compensation expense related to the Company’s share-based payment awards was as follows:

 

     Three Months Ended  
     February 29,      February 28,  
(In thousands)    2012      2011  

Stock options

   $ 885         1,362   

Nonvested shares

     7,276         5,368   
  

 

 

    

 

 

 

Total compensation expense for share-based awards

   $ 8,161         6,730   
  

 

 

    

 

 

 

 

(14) Financial Instruments

The following table presents the carrying amounts and estimated fair values of financial instruments held by the Company at February 29, 2012 and November 30, 2011, using available market information and what the Company believes to be appropriate valuation methodologies. Considerable judgment is required in interpreting market data to develop the estimates of fair value. The use of different market assumptions and/or estimation methodologies might have a material effect on the estimated fair value amounts. The table excludes cash and cash equivalents, restricted cash, defeasance cash to retire notes payable, receivables, net and accounts payable, which had fair values approximating their carrying amounts due to the short maturities of these instruments.

 

     February 29, 2012      November 30, 2011  
     Carrying      Fair      Carrying      Fair  
(In thousands)    Amount      Value      Amount      Value  

ASSETS

           

Rialto Investments:

           

Loans receivable, net

   $ 649,791         665,023         713,354         749,382   

Investments held-to-maturity

   $ 14,313         14,214         14,096         13,996   

Lennar Financial Services:

           

Loans held-for-investment, net

   $ 23,563         21,106         24,262         22,736   

Investments held-to-maturity

   $ 48,771         48,524         48,860         47,651   

LIABILITIES

           

Lennar Homebuilding:

           

Senior notes and other debts payable

   $ 3,472,937         3,923,617         3,362,759         3,491,212   

Rialto Investments:

           

Notes payable

   $ 595,515         575,725         765,541         729,943   

Lennar Financial Services:

           

Notes and other debts payable

   $ 259,449         259,449         410,134         410,134   

The following methods and assumptions are used by the Company in estimating fair values:

Lennar Homebuilding—For senior notes and other debts payable, the fair value of fixed-rate borrowings is based on quoted market prices and the fair value of variable-rate borrowings is based on expected future cash flows calculated using current market forward rates.

Rialto Investments—The fair values for loans receivable is based on discounted cash flows, or the fair value of the collateral less estimated cost to sell. The fair value for investments held-to-maturity is based on discounted cash flows. For notes payable, the fair value of the zero percent interest notes guaranteed by the FDIC was calculated based on a 3-year treasury yield, and the fair value of other notes payable was calculated based on discounted cash flows using the Company’s weighted average borrowing rate.

Lennar Financial Services—The fair values above are based on quoted market prices, if available. The fair values for instruments that do not have quoted market prices are estimated by the Company on the basis of discounted cash flows or other financial information.

 

29


Fair Value Measurements

GAAP provides a framework for measuring fair value, expands disclosures about fair value measurements and establishes a fair value hierarchy which prioritizes the inputs used in measuring fair value summarized as follows:

Level 1 Fair value determined based on quoted prices in active markets for identical assets.

Level 2 Fair value determined using significant other observable inputs.

Level 3 Fair value determined using significant unobservable inputs.

The Company’s financial instruments measured at fair value on a recurring basis are summarized below:

 

Financial Instruments

   Fair
Value
Hierarchy
     Fair
Value at
February 29,
2012
    Fair
Value at
November 30,
2011
 
(In thousands)                    

Lennar Financial Services:

       

Loans held-for-sale (1)

     Level 2       $ 272,760        303,780   

Mortgage loan commitments

     Level 2       $ 5,634        4,192   

Forward contracts

     Level 2       $ (669     (1,404

Lennar Homebuilding:

       

Investments available-for-sale

     Level 3       $ 18,236        42,892   

 

(1) The aggregate fair value of loans held-for-sale of $272.8 million at February 29, 2012 exceeds their aggregate principal balance of $262.5 million by $10.3 million. The aggregate fair value of loans held-for-sale of $303.8 million at November 30, 2011 exceeds their aggregate principal balance of $292.2 million by $11.6 million.

The estimated fair values of the Company’s financial instruments have been determined by using available market information and what the Company believes to be appropriate valuation methodologies. Considerable judgment is required in interpreting market data to develop the estimates of fair value. The use of different market assumptions and/or estimation methodologies might have a material effect on the estimated fair value amounts. The following methods and assumptions are used by the Company in estimating fair values:

Loans held-for-sale— Fair value is based on independent quoted market prices, where available, or the prices for other mortgage whole loans with similar characteristics. Management believes carrying loans held-for-sale at fair value improves financial reporting by mitigating volatility in reported earnings caused by measuring the fair value of the loans and the derivatives instruments used to economically hedge them without having to apply complex hedge accounting provisions. In addition, the Company recognizes the fair value of its rights to service a mortgage loan as revenue upon entering into an interest rate lock loan commitment with a borrower. The fair value of these servicing rights is included in Lennar Financial Services’ loans held-for-sale as of February 29, 2012 and November 30, 2011. Fair value of the servicing rights is determined based on value in the servicing sales contracts.

Mortgage loan commitments— Fair value of commitments to originate loans is based upon the difference between the current value of similar loans and the price at which the Lennar Financial Services segment has committed to originate the loans. The fair value of commitments to sell loan contracts is the estimated amount that the Lennar Financial Services segment would receive or pay to terminate the commitments at the reporting date based on market prices for similar financial instruments.

Forward contracts— Fair value is based on quoted market prices for similar financial instruments.

 

30


Investments available-for-sale— The fair value of these investments are based on third party valuations.

Gains and losses of Lennar Financial Services financial instruments measured at fair value from initial measurement and subsequent changes in fair value are recognized in the Lennar Financial Services segment’s operating earnings. There were no gains or losses recognized for the Lennar Homebuilding investment available-for-sale during the three months ended February 29, 2012. The changes in fair values that are included in operating earnings are shown, by financial instrument and financial statement line item below:

 

     Three Months Ended  
     February 29,     February 28,  
(In thousands)    2012     2011  

Changes in fair value included in Lennar Financial Services revenues:

    

Loans held-for-sale

   $ (1,307     (147

Mortgage loan commitments

   $ 1,442        2,517   

Forward contracts

   $ 735        (4,666

Interest income on loans held-for-sale measured at fair value is calculated based on the interest rate of the loan and recorded in interest income in the Lennar Financial Services’ statement of operations.

The following table represents a reconciliation of beginning and ending balance for the Company’s Level 3 recurring fair value measurements (investments available-for-sale) included in the Lennar Homebuilding segment’s other assets for the three months ended February 29, 2012:

 

(In thousands)    Three Months
Ended
February 29,
2012
 

Investments available-for-sale, beginning of period

   $ 42,892   

Purchases (1)

     14,928   

Sales

     (6,436

Settlements (2)

     (33,148
  

 

 

 

Investments available-for-sale, end of period

   $ 18,236   
  

 

 

 

 

(1) Represents investments in community development district bonds that mature at various dates between 2022 and 2042.
(2) The investments available-for-sale that were settled during the three months ended February 29, 2012 related to investments in community development district bonds, which were in default by the borrower and which the Company foreclosed on the underlying real estate collateral. Therefore, these investments were reclassified from other assets to land and land under development.

 

31


The Company’s assets measured at fair value on a nonrecurring basis are those assets for which the Company has recorded valuation adjustments and write-offs and Rialto Investments real estate owned assets. The fair value included in the tables below represent only those assets whose carrying value were adjusted to fair value during the respective periods disclosed. The assets measured at fair value on a nonrecurring basis are summarized below:

 

Non-financial assets

   Fair
Value
Hierarchy
     Fair Value
Three Months
Ended
February 29,
2012
     Total Gains
(Losses) (1)
 
(In thousands)                     

Lennar Homebuilding:

        

Finished homes and construction in progress (2)

     Level 3       $ 1,548         (2,025

Rialto Investments:

        

REO - held-for-sale (3)

     Level 3       $ 11,423         (462

REO - held-and-used, net (4)

     Level 3       $ 54,289         2,414   

 

(1) Represents total losses due to valuation adjustments and impairments, and total gains from acquisitions of real estate through foreclosure recorded during the three months ended February 29, 2012.
(2) Finished homes and construction in progress with an aggregate carrying value of $3.5 million were written down to their fair value of $1.5 million, resulting in valuation adjustments of $2.0 million, which were included in Lennar Homebuilding costs and expenses in the Company’s statement of operations for the three months ended February 29, 2012.
(3) REO, held-for-sale, assets are initially recorded at fair value less estimated costs to sell at the time of acquisition through, or in lieu of, loan foreclosure. Upon acquisition, the REO, held-for-sale, had a carrying value of $0.3 million and a fair value of $1.1 million. The fair value of REO, held-for-sale, is based upon the appraised value at the time of foreclosure or management’s best estimate. The gains upon acquisition of REO, held-for-sale, were $0.8 million. As part of management’s periodic valuations of its REO, held-for-sale, during the three months ended February 29, 2012, REO, held-for-sale, with an aggregate value of $11.5 million were written down to their fair value of $10.3 million, resulting in impairments of $1.2 million. These gains and impairments are included within Rialto Investments other income (expense), net in the Company’s statement of operations for the three months ended February 29, 2012.
(4) REO, held-and-used, net, assets are initially recorded at fair value at the time of acquisition through, or in lieu of, loan foreclosure. Upon acquisition, the REO, held-and-used, net, had a carrying value of $41.2 million and a fair value of $46.2 million. The fair value of REO, held-and-used, net, is based upon the appraised value at the time of foreclosure or management’s best estimate. The gains upon acquisition of REO, held-and-used, net, were $5.0 million. As part of management’s periodic valuations of its REO, held-and-used, net, during the three months ended February 29, 2012, REO, held-and-used, net, with an aggregate value of $10.6 million were written down to their fair value of $8.0 million, resulting in impairments of $2.6 million. These gains and impairments are included within Rialto Investments other income (expense), net in the Company’s statement of operations for the three months ended February 29, 2012.

 

Non-financial assets

   Fair
Value
Hierarchy
     Fair Value
Three Months
Ended
February 28,
2011
     Total Gains
(Losses) (1)
 
(In thousands)                     

Lennar Homebuilding:

        

Finished homes and construction in progress (2)

     Level 3       $ 4,332         (4,812

Investments in unconsolidated entities (3)

     Level 3       $ 529         (8,262

Rialto Investments:

        

REO - held-for-sale (4)

     Level 3       $ 185,641         16,940   

REO - held-and-used, net (5)

     Level 3       $ 7,343         169   

 

(1) Represents total losses due to valuation adjustments and total gains from acquisitions of real estate through foreclosure recorded during the three months ended February 28, 2011.
(2) Finished homes and construction in progress with an aggregate carrying value of $9.1 million were written down to their fair value of $4.3 million, resulting in valuation adjustments of $4.8 million, which were included in Lennar Homebuilding costs and expenses in the Company’s statement of operations for the three months ended February 28, 2011.
(3) Lennar Homebuilding investments in unconsolidated entities with an aggregate carrying value of $8.8 million were written down to their fair value of $0.5 million, resulting in valuation adjustments of $8.3 million, which were included in Lennar Homebuilding other income, net in the Company’s statement of operations for the three months ended February 28, 2011.

 

32


(4) REO, held-for-sale, assets are initially recorded at fair value less estimated costs to sell at the time of acquisition through, or in lieu of, loan foreclosure. Upon acquisition, the REO, held-for-sale, had a carrying value of $168.7 million and a fair value of $185.6 million. The fair value of REO, held-for-sale, is based upon the appraised value at the time of foreclosure or management’s best estimate. The gains upon acquisition of REO, held-for-sale, were $16.9 million and are included within Rialto Investments other income (expense), net in the Company’s statement of operations for the three months ended February 28, 2011.
(5) REO, held-and-used, net, assets are initially recorded at fair value at the time of acquisition through, or in lieu of, loan foreclosure. Upon acquisition, the REO, held-and-used, net, had a carrying value of $7.1 million and a fair value of $7.3 million. The fair value of REO, held-and-used, net, is based upon the appraised value at the time of foreclosure or management’s best estimate. The gains upon acquisition of REO, held-and-used, net, were $0.2 million and are included within Rialto Investments other income (expense), net in the Company’s statement of operations for the three months ended February 28, 2011.

Finished homes and construction in progress are included within inventories. Inventories are stated at cost unless the inventory within a community is determined to be impaired, in which case the impaired inventory is written down to fair value. Inventory costs include land, land development and home construction costs, real estate taxes, deposits on land purchase contracts and interest related to development and construction. Construction overhead and selling expenses are expensed as incurred. Homes held-for-sale are classified as inventories until delivered. Land, land development, amenities and other costs are accumulated by specific area and allocated to homes within the respective areas. The Company reviews its inventory for indicators of impairment by evaluating each community during each reporting period. The inventory within each community is categorized as finished homes and construction in progress or land under development based on the development state of the community. There were 426 and 447 active communities as of February 29, 2012 and February 28, 2011, respectively. If the undiscounted cash flows expected to be generated by a community are less than its carrying amount, an impairment charge is recorded to write down the carrying amount of such community to its estimated fair value.

In conducting its review for indicators of impairment on a community level, the Company evaluates, among other things, the margins on homes that have been delivered, margins on homes under sales contracts in backlog, projected margins with regard to future home sales over the life of the community, projected margins with regard to future land sales and the estimated fair value of the land itself. The Company pays particular attention to communities in which inventory is moving at a slower than anticipated absorption pace and communities whose average sales price and/or margins are trending downward and are anticipated to continue to trend downward. From this review, the Company identifies communities whose carrying values exceed their undiscounted cash flows.

The Company estimates the fair value of its communities using a discounted cash flow model. The projected cash flows for each community are significantly impacted by estimates related to market supply and demand, product type by community, homesite sizes, sales pace, sales prices, sales incentives, construction costs, sales and marketing expenses, the local economy, competitive conditions, labor costs, costs of materials and other factors for that particular community. Every division evaluates the historical performance of each of its communities as well as current trends in the market and economy impacting the community and its surrounding areas. These trends are analyzed for each of the estimates listed above. For example, since the start of the downturn in the housing market, the Company has found ways to reduce its construction costs in many communities, and this reduction in construction costs in addition to change in product type in many communities has impacted future estimated cash flows.

Each of the homebuilding markets in which the Company operates is unique, as homebuilding has historically been a local business driven by local market conditions and demographics. Each of the Company’s homebuilding markets has specific supply and demand relationships reflective of local economic conditions. The Company’s projected cash flows are impacted by many assumptions. Some of the most critical assumptions in the Company’s cash flow model are projected absorption pace for home sales, sales prices and costs to build and deliver homes on a community by community basis.

 

33


In order to arrive at the assumed absorption pace for home sales included in the Company’s cash flow model, the Company analyzes its historical absorption pace in the community as well as other comparable communities in the geographical area. In addition, the Company considers internal and external market studies and trends, which generally include, but are not limited to, statistics on population demographics, unemployment rates and availability of competing product in the geographic area where the community is located. When analyzing the Company’s historical absorption pace for home sales and corresponding internal and external market studies, the Company places greater emphasis on more current metrics and trends such as the absorption pace realized in its most recent quarters as well as forecasted population demographics, unemployment rates and availability of competing product. Generally, if the Company notices a variation from historical results over a span of two fiscal quarters, the Company considers such variation to be the establishment of a trend and adjusts its historical information accordingly in order to develop assumptions on the projected absorption pace in the cash flow model for a community.

In order to determine the assumed sales prices included in its cash flow models, the Company analyzes the historical sales prices realized on homes it delivered in the community and other comparable communities in the geographical area as well as the sales prices included in its current backlog for such communities. In addition, the Company considers internal and external market studies and trends, which generally include, but are not limited to, statistics on sales prices in neighboring communities and sales prices on similar products in non-neighboring communities in the geographic area where the community is located. When analyzing its historical sales prices and corresponding market studies, the Company also places greater emphasis on more current metrics and trends such as future forecasted sales prices in neighboring communities as well as future forecasted sales prices for similar products in non-neighboring communities. Generally, if the Company notices a variation from historical results over a span of two fiscal quarters, the Company considers such variation to be the establishment of a trend and adjusts its historical information accordingly in order to develop assumptions on the projected sales prices in the cash flow model for a community.

In order to arrive at the Company’s assumed costs to build and deliver homes, the Company generally assumes a cost structure reflecting contracts currently in place with its vendors adjusted for any anticipated cost reduction initiatives or increases in cost structure. Costs assumed in the cash flow model for the Company’s communities are generally based on the rates the Company is currently obligated to pay under existing contracts with its vendors adjusted for any anticipated cost reduction initiatives or increases in cost structure.

Since the estimates and assumptions included in the Company’s cash flow models are based upon historical results and projected trends, they do not anticipate unexpected changes in market conditions or strategies that may lead the Company to incur additional impairment charges in the future.

Using all available information, the Company calculates its best estimate of projected cash flows for each community. While many of the estimates are calculated based on historical and projected trends, all estimates are subjective and change from market to market and community to community as market and economic conditions change. The determination of fair value also requires discounting the estimated cash flows at a rate the Company believes a market participant would determine to be commensurate with the inherent risks associated with the assets and related estimated cash flow streams. The discount rate used in determining each asset’s fair value depends on the community’s projected life and development stage. The Company generally uses a discount rate of approximately 20%, subject to the perceived risks associated with the community’s cash flow streams relative to its inventory.

The Company estimates the fair value of inventory evaluated for impairment based on market conditions and assumptions made by management at the time the inventory is evaluated, which may differ materially from actual results if market conditions or assumptions change. For example, further market deterioration or changes in assumptions may lead to the Company incurring additional impairment charges on previously impaired inventory, as well as on inventory not currently impaired but for which indicators of impairment may arise if further market deterioration occurs.

 

34


The Company evaluates its investments in unconsolidated entities for indicators of impairment during each reporting period. A series of operating losses of an investee or other factors may indicate that a decrease in value of the Company’s investment in the unconsolidated entity has occurred which is other-than-temporary. The amount of impairment recognized is the excess of the investment’s carrying amount over its estimated fair value.

The evaluation of the Company’s investment in unconsolidated entities includes certain critical assumptions made by management: (1) projected future distributions from the unconsolidated entities, (2) discount rates applied to the future distributions and (3) various other factors.

The Company’s assumptions on the projected future distributions from the unconsolidated entities are dependent on market conditions. Specifically, distributions are dependent on cash to be generated from the sale of inventory by the unconsolidated entities. Such inventory is also reviewed for potential impairment by the unconsolidated entities. The unconsolidated entities generally use a discount rate of approximately 20% in their reviews for impairment, subject to the perceived risks associated with the community’s cash flow streams relative to its inventory. If a valuation adjustment is recorded by an unconsolidated entity related to its assets, the Company’s proportionate share is reflected in the Company’s homebuilding equity in earnings (loss) from unconsolidated entities with a corresponding decrease to its investment in unconsolidated entities. In certain instances, the Company may be required to record additional losses relating to its investment in unconsolidated entities, if the Company’s investment in the unconsolidated entity, or a portion thereof, is deemed to be other than temporarily impaired. These losses are included in Lennar Homebuilding other income, net.

Additionally, the Company considers various qualitative factors to determine if a decrease in the value of the investment is other-than-temporary. These factors include age of the venture, intent and ability for the Company to recover its investment in the entity, financial condition and long-term prospects of the entity, short-term liquidity needs of the unconsolidated entity, trends in the general economic environment of the land, entitlement status of the land held by the unconsolidated entity, overall projected returns on investment, defaults under contracts with third parties (including bank debt), recoverability of the investment through future cash flows and relationships with the other partners and banks. If the Company believes that the decline in the fair value of the investment is temporary, then no impairment is recorded.

REO represents real estate that the Rialto segment has taken control or has effective control of in partial or full satisfaction of loans receivable. At the time of acquisition of a property through foreclosure of a loan, REO is recorded at fair value less estimated costs to sell if classified as held-for-sale or at fair value if classified as held-and-used, which becomes the property’s new basis. The fair values of these assets are determined in part by placing reliance on third party appraisals of the properties and/or internally prepared analyses of recent offers or prices on comparable properties in the proximate vicinity. The third party appraisals and internally developed analyses are significantly impacted by the local market economy, market supply and demand, competitive conditions and prices on comparable properties, adjusted for date of sale, location, property size, and other factors. Each REO is unique and is analyzed in the context of the particular market where the property is located. In order to establish the significant assumptions for a particular REO, the Company analyzes historical trends, including trends achieved by our local homebuilding operations, if applicable, and current trends in the market and economy impacting the REO. Using available trend information, the Company then calculates its best estimate of fair value, which can include projected cash flows discounted at a rate the Company believes a market participant would determine to be commensurate with the inherent risks associated with the assets and related estimated cash flow streams.

Changes in economic factors, consumer demand and market conditions, among other things, could materially impact estimates used in the third party appraisals and/or internally prepared analyses of recent offers or prices on comparable properties. Thus, estimates can differ significantly from the amounts ultimately realized by the Rialto segment from disposition of these assets. The amount by which the recorded investment in the loan is less than the REO’s fair value (net of estimated cost to sell if held-for-sale), is recorded as an unrealized gain on foreclosure in the Company’s statement of operations. The amount by which the recorded investment in the loan is greater than the REO’s fair value (net of estimated cost to sell if held-for-sale) is initially recorded as an impairment in the Company’s statement of operations.

 

35


(15) Consolidation of Variable Interest Entities

GAAP requires the consolidation of VIEs in which an enterprise has a controlling financial interest. A controlling financial interest will have both of the following characteristics: (a) the power to direct the activities of a VIE that most significantly impact the VIEs economic performance and (b) the obligation to absorb losses of the VIE that could potentially be significant to the VIE or the right to receive benefits from the VIE that could potentially be significant to the VIE.

The Company’s variable interest in VIEs may be in the form of (1) equity ownership, (2) contracts to purchase assets, (3) management and development agreements between the Company and a VIE, (4) loans provided by the Company to a VIE or other partner and/or (5) guarantees provided by members to banks and other third parties. The Company examines specific criteria and uses its judgment when determining if the Company is the primary beneficiary of a VIE. Factors considered in determining whether the Company is the primary beneficiary include risk and reward sharing, experience and financial condition of other partner(s), voting rights, involvement in day-to-day capital and operating decisions, representation on a VIE’s executive committee, existence of unilateral kick-out rights or voting rights, level of economic disproportionality, if any, between the Company and the other partner(s) and contracts to purchase assets from VIEs.

Generally, all major decision making in the Company’s joint ventures is shared between all partners. In particular, business plans and budgets are generally required to be unanimously approved by all partners. Usually, management and other fees earned by the Company are nominal and believed to be at market and there is no significant economic disproportionality between the Company and other partners. Generally, the Company purchases less than a majority of the joint venture’s assets and the purchase prices under the Company’s option contracts are believed to be at market.

Generally, Lennar Homebuilding unconsolidated entities become VIEs and consolidate when the other partner(s) lack the intent and financial wherewithal to remain in the entity. As a result, the Company continues to fund operations and debt paydowns through partner loans or substituted capital contributions.

The Company evaluated the joint venture agreements of its joint ventures that had reconsideration events during the three months ended February 29, 2012. Based on the Company’s evaluation, there were no entities that consolidated during the three months ended February 29, 2012. In addition, during the three months ended February 29, 2012, there were no VIEs that were deconsolidated.

At February 29, 2012 and November 30, 2011, the Company’s recorded investments in Lennar Homebuilding unconsolidated entities were $563.4 million and $545.8 million, respectively, and the Rialto segment’s investments in unconsolidated entities as of February 29, 2012 and November 30, 2011 were $149.7 million and $124.7 million, respectively.

Consolidated VIEs

As of February 29, 2012, the carrying amounts of the VIEs’ assets and non-recourse liabilities that consolidated were $2.1 billion and $0.7 billion, respectively. Those assets are owned by, and those liabilities are obligations of, the VIEs, not the Company.

A VIE’s assets can only be used to settle obligations of that VIE. The VIEs are not guarantors of Company’s senior notes and other debts payable. In addition, the assets held by a VIE usually are collateral for that VIE’s debt. The Company and other partners do not generally have an obligation to make capital contributions to a VIE unless the Company and/or the other partner(s) have entered into debt guarantees with a VIE’s banks. Other than debt guarantee agreements with a VIE’s banks, there are no liquidity arrangements or agreements to fund capital or purchase assets that could require the Company to provide financial support to a VIE. While the Company has option contracts to purchase land from certain of its VIEs, the Company is not required to purchase the assets and could walk away from the contracts.

 

36


Unconsolidated VIEs

The Company’s recorded investment in VIEs that are unconsolidated and its estimated maximum exposure to loss were as follows:

As of February 29, 2012

 

(In thousands)    Investments in
Unconsolidated
VIEs
     Lennar’s
Maximum
Exposure
to Loss
 

Lennar Homebuilding (1)

   $ 98,616         126,077   

Rialto Investments (2)

     98,399         105,899   
  

 

 

    

 

 

 
   $ 197,015         231,976   
  

 

 

    

 

 

 

As of November 30, 2011

 

(In thousands)    Investments in
Unconsolidated
VIEs
     Lennar’s
Maximum
Exposure
to Loss
 

Lennar Homebuilding (1)

   $ 94,517         123,038   

Rialto Investments (2)

     88,076         95,576   
  

 

 

    

 

 

 
   $ 182,593         218,614   
  

 

 

    

 

 

 

 

(1) At both February 29, 2012 and November 30, 2011, the maximum exposure to loss of Lennar Homebuilding’s investments in unconsolidated VIEs is limited to its investment in the unconsolidated VIEs, except with regard to $27.4 million and $28.3 million, respectively, of recourse debt of one of the unconsolidated VIEs, which is included in the Company’s maximum recourse related to Lennar Homebuilding unconsolidated entities.
(2) For Rialto’s investment in unconsolidated VIEs, the Company made a $75 million commitment to fund capital in the AB PPIP fund. As of both February 29, 2012 and November 30, 2011, the Company had contributed $67.5 million of the $75 million commitment, and it cannot walk away from its remaining commitment to fund capital. Therefore, as of February 29, 2012 and November 30, 2011, the maximum exposure to loss for Rialto’s unconsolidated VIEs was higher than the carrying amount of its investments. In addition, at February 29, 2012 and November 30, 2011, investments in unconsolidated VIEs and Lennar’s maximum exposure to loss include $14.3 million and $14.1 million, respectively, related to Rialto’s investments held-to-maturity.

While these entities are VIEs, the Company has determined that the power to direct the activities of the VIEs that most significantly impact the VIEs’ economic performance is generally shared. While the Company generally manages the day-to-day operations of the VIEs, the VIEs have an executive committee made up of representatives from each partner. The members of the executive committee have equal votes and major decisions require unanimous consent and approval from all members. The Company does not have the unilateral ability to exercise participating voting rights without partner consent. Furthermore, the Company’s economic interest is not significantly disproportionate to the point where it would indicate that the Company has the power to direct these activities.

The Company and other partners do not generally have an obligation to make capital contributions to the VIEs, except for the Company’s $7.5 million remaining commitment to the AB PPIP fund as of February 29, 2012 and $27.4 million of recourse debt of one of the Lennar Homebuilding unconsolidated VIEs. The Company and the other partners did not guarantee any debt of these unconsolidated VIEs. There are no liquidity arrangements or agreements to fund capital or purchase assets that could require the Company to provide financial support to the VIEs. While the Company has option contracts to purchase land from certain of its unconsolidated VIEs, the Company is not required to purchase the assets and could walk away from the contracts.

 

37


Option Contracts

The Company has access to land through option contracts, which generally enables it to control portions of properties owned by third parties (including land funds) and unconsolidated entities until the Company has determined whether to exercise the option.

A majority of the Company’s option contracts require a non-refundable cash deposit or irrevocable letter of credit based on a percentage of the purchase price of the land. The Company’s option contracts sometimes include price adjustment provisions, which adjust the purchase price of the land to its approximate fair value at the time of acquisition or are based on the fair value at the time of takedown.

The Company’s investments in option contracts are recorded at cost unless those investments are determined to be impaired, in which case the Company’s investments are written down to fair value. The Company reviews option contracts for indicators of impairment during each reporting period. The most significant indicator of impairment is a decline in the fair value of the optioned property such that the purchase and development of the optioned property would no longer meet the Company’s targeted return on investment with appropriate consideration given to the length of time available to exercise the option. Such declines could be caused by a variety of factors including increased competition, decreases in demand or changes in local regulations that adversely impact the cost of development. Changes in any of these factors would cause the Company to re-evaluate the likelihood of exercising its land options.

Some option contracts contain a predetermined take-down schedule for the optioned land parcels. However, in almost all instances, the Company is not required to purchase land in accordance with those take-down schedules. In substantially all instances, the Company has the right and ability to not exercise its option and forfeit its deposit without further penalty, other than termination of the option and loss of any unapplied portion of its deposit and pre-acquisition costs. Therefore, in substantially all instances, the Company does not consider the take-down price to be a firm contractual obligation.

When the Company does not intend to exercise an option, it writes off any unapplied deposit and pre-acquisition costs associated with the option contract.

The Company evaluates all option contracts for land to determine whether they are VIEs and, if so, whether the Company is the primary beneficiary of certain of these option contracts. Although the Company does not have legal title to the optioned land, if the Company is deemed to be the primary beneficiary, it is required to consolidate the land under option at the purchase price of the optioned land. During the three months ended February 29, 2012, the effect of consolidation of these option contracts was a net increase of $2.1 million to consolidated inventory not owned with a corresponding increase to liabilities related to consolidated inventory not owned in the accompanying condensed consolidated balance sheet as of February 29, 2012. To reflect the purchase price of the inventory consolidated, the Company reclassified the related option deposits from land under development to consolidated inventory not owned in the accompanying condensed consolidated balance sheet as of February 29, 2012. The liabilities related to consolidated inventory not owned primarily represent the difference between the option exercise prices for the optioned land and the Company’s cash deposits. The increase to consolidated inventory not owned was offset by the Company exercising its options to acquire land under certain contracts previously consolidated resulting in a net decrease in consolidated inventory not owned of $9.7 million for the three months ended February 29, 2012.

The Company’s exposure to loss related to its option contracts with third parties and unconsolidated entities consisted of its non-refundable option deposits and pre-acquisition costs totaling $159.8 million and $156.8 million, respectively, at February 29, 2012 and November 30, 2011. Additionally, the Company had posted $44.4 million and $44.1 million, respectively, of letters of credit in lieu of cash deposits under certain option contracts as of February 29, 2012 and November 30, 2011.

 

38


(16) New Accounting Pronouncements

In January 2010, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2010-06, Improving Disclosures about Fair Value Measurements, (“ASU 2010-06”), which requires additional disclosures about transfers between Levels 1 and 2 of the fair value hierarchy and disclosures about purchases, sales, issuances and settlements in the rollforward of activity in Level 3 fair value measurements. The Company adopted ASU 2010-06 for its second quarter ended May 31, 2010, except for the Level 3 activity disclosures which were effective for the Company’s fiscal year beginning December 1, 2011. The adoption of this ASU did not have a material effect on the Company’s condensed consolidated financial statements, but did require additional disclosures.

In May 2011, the FASB issued ASU 2011-04, Amendments to Achieve Common Fair Value Measurement and Disclosure Requirements in U.S. GAAP and IFRSs, (“ASU 2011-04”). ASU 2011-04 amends ASC 820, Fair Value Measurements, (“ASC 820”), providing a consistent definition and measurement of fair value, as well as similar disclosure requirements between U.S. GAAP and International Financial Reporting Standards. ASU 2011-04 changes certain fair value measurement principles, clarifies the application of existing fair value measurement and expands the ASC 820 disclosure requirements, particularly for Level 3 fair value measurements. ASU 2011-04 will be effective for the Company’s quarter ending May 31, 2012. The adoption of ASU 2011-04 is not expected to have a material effect on the Company’s condensed consolidated financial statements, but may require certain additional disclosures.

In June 2011, the FASB issued ASU 2011-05, Presentation of Comprehensive Income, (“ASU 2011-05”). ASU 2011-05 requires the presentation of comprehensive income in either (1) a continuous statement of comprehensive income or (2) two separate but consecutive statements. ASU 2011-05 will be effective for the Company’s quarter ending May 31, 2012. The adoption of ASU 2011-05 is not expected to have a material effect on the Company’s condensed consolidated financial statements, but will require a change in the presentation of the Company’s comprehensive income from the notes of the consolidated financial statements, where it is currently disclosed, to the face of the condensed consolidated financial statements.

In September 2011, the FASB issued ASU 2011-08, Testing Goodwill for Impairment, (“ASU 2011-08”), which amends the guidance in ASC 350-20, Intangibles – Goodwill and Other – Goodwill. Under ASU 2011-08, entities have the option of performing a qualitative assessment before calculating the fair value of the reporting unit when testing goodwill for impairment. If the fair value of the reporting unit is determined, based on qualitative factors, to be more likely than not less than the carrying amount of the reporting unit, then entities are required to perform the two-step goodwill impairment test. ASU 2011-08 will be effective for the Company’s fiscal year beginning December 1, 2012, with early adoption permitted. The adoption of ASU 2011-08 is not expected to have a material effect on the Company’s condensed consolidated financial statements.

 

39


(17) Supplemental Financial Information

The indentures governing the principal amounts of the Company’s 5.95% senior notes due 2013, 5.50% senior notes due 2014, 5.60% senior notes due 2015, 6.50% senior notes due 2016, 12.25% senior notes due 2017, 6.95% senior notes due 2018, 2.00% convertible senior notes due 2020, 2.75% convertible senior notes due 2020 and 3.25% convertible senior notes due 2021 require that, if any of the Company’s wholly owned subsidiaries, other than its finance company subsidiaries and foreign subsidiaries, directly or indirectly guarantee at least $75 million principal amount of debt of Lennar Corporation, those subsidiaries must also guarantee Lennar Corporation’s obligations with regard to its senior notes. The entities referred to as “guarantors” in the following tables are subsidiaries that were guaranteeing the $150 million LC Agreement and the $200 million Letter of Credit Facility at February 29, 2012. Supplemental information for the guarantors is as follows:

Condensed Consolidating Balance Sheet

February 29, 2012

 

(In thousands)    Lennar
Corporation
    Guarantor
Subsidiaries
     Non-Guarantor
Subsidiaries
     Eliminations     Total  

ASSETS

            

Lennar Homebuilding:

            

Cash and cash equivalents, restricted cash and receivables, net

   $ 676,284        147,285         24,342         —          847,911   

Inventories

     —          4,163,879         503,663         —          4,667,542   

Investments in unconsolidated entities

     —          519,592         43,772         —          563,364   

Other assets

     41,037        179,697         219,412         —          440,146   

Investments in subsidiaries

     3,356,188        599,693         —           (3,955,881     —     
  

 

 

   

 

 

    

 

 

    

 

 

   

 

 

 
     4,073,509        5,610,146         791,189         (3,955,881     6,518,963   

Rialto Investments

     —          —           1,751,721         —          1,751,721   

Lennar Financial Services

     —          150,754         446,056         —          596,810   
  

 

 

   

 

 

    

 

 

    

 

 

   

 

 

 

Total assets

   $ 4,073,509        5,760,900         2,988,966         (3,955,881     8,867,494   
  

 

 

   

 

 

    

 

 

    

 

 

   

 

 

 

LIABILITIES AND EQUITY

            

Lennar Homebuilding:

            

Accounts payable and other liabilities

   $ 234,448        476,587         21,583         —          732,618   

Liabilities related to consolidated inventory not owned

     —          317,136         —           —          317,136   

Senior notes and other debts payable

     2,976,583        277,466         218,888         —          3,472,937   

Intercompany

     (1,860,318     1,288,416         571,902         —          —     
  

 

 

   

 

 

    

 

 

    

 

 

   

 

 

 
     1,350,713        2,359,605         812,373         —          4,522,691   

Rialto Investments

     —          —           612,144         —          612,144   

Lennar Financial Services

     —          45,107         364,299         —          409,406   
  

 

 

   

 

 

    

 

 

    

 

 

   

 

 

 

Total liabilities

     1,350,713        2,404,712         1,788,816         —          5,544,241   

Stockholders’ equity

     2,722,796        3,356,188         599,693         (3,955,881     2,722,796   

Noncontrolling interests

     —          —           600,457         —          600,457   
  

 

 

   

 

 

    

 

 

    

 

 

   

 

 

 

Total equity

     2,722,796        3,356,188         1,200,150         (3,955,881     3,323,253   
  

 

 

   

 

 

    

 

 

    

 

 

   

 

 

 

Total liabilities and equity

   $ 4,073,509        5,760,900         2,988,966         (3,955,881     8,867,494   
  

 

 

   

 

 

    

 

 

    

 

 

   

 

 

 

 

40


(17) Supplemental Financial Information – (Continued)

 

Condensed Consolidating Balance Sheet

November 30, 2011

 

(In thousands)    Lennar
Corporation
    Guarantor
Subsidiaries
     Non-Guarantor
Subsidiaries
     Eliminations     Total  

ASSETS

            

Lennar Homebuilding:

            

Cash and cash equivalents, restricted cash and receivables, net

   $ 871,376        190,483         24,920         —          1,086,779   

Inventories

     —          3,822,009         538,526         —          4,360,535   

Investments in unconsolidated entities

     —          502,363         43,397         —          545,760   

Other assets

     35,722        269,392         219,580         —          524,694   

Investments in subsidiaries

     3,368,336        611,311         —           (3,979,647     —     
  

 

 

   

 

 

    

 

 

    

 

 

   

 

 

 
     4,275,434        5,395,558         826,423         (3,979,647     6,517,768   

Rialto Investments

     —          —           1,897,148         —          1,897,148   

Lennar Financial Services

     —          149,842         589,913         —          739,755   
  

 

 

   

 

 

    

 

 

    

 

 

   

 

 

 

Total assets

   $ 4,275,434        5,545,400         3,313,484         (3,979,647     9,154,671   
  

 

 

   

 

 

    

 

 

    

 

 

   

 

 

 

LIABILITIES AND EQUITY

            

Lennar Homebuilding:

            

Accounts payable and other liabilities

   $ 290,337        483,590         29,405         —          803,332   

Liabilities related to consolidated inventory not owned

     —          326,200         —           —          326,200   

Senior notes and other debts payable

     2,922,855        215,840         224,064         —          3,362,759   

Intercompany

     (1,634,226     1,105,872         528,354         —          —     
  

 

 

   

 

 

    

 

 

    

 

 

   

 

 

 
     1,578,966        2,131,502         781,823         —          4,492,291   

Rialto Investments

     —          —           796,120         —          796,120   

Lennar Financial Services

     —          45,562         517,173         —          562,735   
  

 

 

   

 

 

    

 

 

    

 

 

   

 

 

 

Total liabilities

     1,578,966        2,177,064         2,095,116         —          5,851,146   

Stockholders’ equity

     2,696,468        3,368,336         611,311         (3,979,647     2,696,468   

Noncontrolling interests

     —          —           607,057         —          607,057   
  

 

 

   

 

 

    

 

 

    

 

 

   

 

 

 

Total equity

     2,696,468        3,368,336         1,218,368         (3,979,647     3,303,525   
  

 

 

   

 

 

    

 

 

    

 

 

   

 

 

 

Total liabilities and equity

   $ 4,275,434        5,545,400         3,313,484         (3,979,647     9,154,671   
  

 

 

   

 

 

    

 

 

    

 

 

   

 

 

 

 

41


(17) Supplemental Financial Information – (Continued)

 

Condensed Consolidating Statement of Operations

Three Months Ended February 29, 2012

 

(In thousands)    Lennar
Corporation
    Guarantor
Subsidiaries
    Non-Guarantor
Subsidiaries
    Eliminations     Total  

Revenues:

          

Lennar Homebuilding

   $ —          624,028        405        —          624,433   

Lennar Financial Services

     —          34,550        37,982        (4,317     68,215   

Rialto Investments

     —          —          32,208        —          32,208   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total revenues

     —          658,578        70,595        (4,317     724,856   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Cost and expenses:

          

Lennar Homebuilding

     —          580,510        4,375        (140     584,745   

Lennar Financial Services

     —          34,966        28,918        (3,919     59,965   

Rialto Investments

     —          78        33,370        (78     33,370   

Corporate general and administrative

     25,499        —          —          1,343        26,842   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total costs and expenses

     25,499        615,554        66,663        (2,794     704,922   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Lennar Homebuilding equity in earnings (loss) from unconsolidated entities

     —          1,141        (58     —          1,083   

Lennar Homebuilding other income (expense), net

     (77     4,058        —          86        4,067   

Other interest expense

     (1,437     (24,849     —          1,437        (24,849

Rialto Investments equity in earnings from unconsolidated entities

     —          —          18,458        —          18,458   

Rialto Investments other expense, net

     —          —          (12,240     —          (12,240
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Earnings (loss) before income taxes

     (27,013     23,374        10,092        —          6,453   

Benefit (provision) for income taxes

     12,609        (6,034     (5,051     —          1,524   

Equity in earnings from subsidiaries

     29,372        12,032        —          (41,404     —     
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net earnings (including net loss attributable to noncontrolling interests)

     14,968        29,372        5,041        (41,404     7,977   

Less: Net loss attributable to noncontrolling interests

     —          —          (6,991     —          (6,991
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net earnings attributable to Lennar

   $ 14,968        29,372        12,032        (41,404     14,968   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

42


(17) Supplemental Financial Information – (Continued)

 

Condensed Consolidating Statement of Operations

Three Months Ended February 28, 2011

 

(In thousands)    Lennar
Corporation
    Guarantor
Subsidiaries
    Non-Guarantor
Subsidiaries
    Eliminations     Total  

Revenues:

          

Lennar Homebuilding

   $ —          458,957        7,752        —          466,709   

Lennar Financial Services

     —          33,994        38,365        (14,646     57,713   

Rialto Investments

     —          —          33,623        —          33,623   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total revenues

     —          492,951        79,740        (14,646     558,045   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Cost and expenses:

          

Lennar Homebuilding

     —          434,220        15,635        (2,092     447,763   

Lennar Financial Services

     —          35,770        32,337        (11,577     56,530   

Rialto Investments

     —          —          28,349        —          28,349   

Corporate general and administrative

     22,231        —          —          1,121        23,352   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total costs and expenses

     22,231        469,990        76,321        (12,548     555,994   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Lennar Homebuilding equity in earnings (loss) from unconsolidated entities

     —          8,683        (22     —          8,661   

Lennar Homebuilding other income, net

     9,676        29,951        —          (9,667     29,960   

Other interest expense

     (11,765     (22,079     —          11,765        (22,079

Rialto Investments equity in earnings from unconsolidated entities

     —          —          4,525        —          4,525   

Rialto Investments other income, net

     —          —          13,203        —          13,203   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Earnings (loss) before income taxes

     (24,320     39,516        21,125        —          36,321   

Benefit (provision) for income taxes

     13,109        (9,801     (903     —          2,405   

Equity in earnings from subsidiaries

     38,617        8,902        —          (47,519     —     
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net earnings (including net earnings attributable to noncontrolling interests)

     27,406        38,617        20,222        (47,519     38,726   

Less: Net earnings attributable to noncontrolling interests

     —          —          11,320        —          11,320   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net earnings attributable to Lennar

   $ 27,406        38,617        8,902        (47,519     27,406   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

43


(17) Supplemental Financial Information – (Continued)

 

Condensed Consolidating Statement of Cash Flows

Three Months Ended February 29, 2012

 

(In thousands)    Lennar
Corporation
    Guarantor
Subsidiaries
    Non-Guarantor
Subsidiaries
    Eliminations     Total  

Cash flows from operating activities:

          

Net earnings (including net loss attributable to noncontrolling interests)

   $ 14,968        29,372        5,041        (41,404     7,977   

Adjustments to reconcile net earnings (including net loss attributable to noncontrolling interests) to net cash provided by (used in) operating activities

     (46,874     (229,062     94,111        41,404        (140,421
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net cash provided by (used in) operating activities

     (31,906     (199,690     99,152        —          (132,444
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Cash flows from investing activities:

          

Investments in and contributions to Lennar Homebuilding unconsolidated entities, net

     —          (16,465     (448     —          (16,913

Investments in and contributions to Rialto Investments consolidated and unconsolidated entities, net

     —          —          (7,213     —          (7,213

Decrease in Rialto Investments defeasance cash to retire notes payable

     —          —          108,163        —          108,163   

Receipts of principal payments on Rialto Investments loans receivable

     —          —          33,549        —          33,549   

Proceeds from sales of Rialto Investments real estate owned

     —          —          37,868        —          37,868   

Other

     —          5,147        (3,895     —          1,252   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net cash provided by (used in) investing activities

     —          (11,318     168,024        —          156,706   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Cash flows from financing activities:

          

Net repayments under Lennar Financial Services debt

     —          (55     (150,629     —          (150,684

Net proceeds from convertible senior notes

     48,965        —          —          —          48,965   

Principal repayments on Rialto Investments notes payable

     —          —          (170,026     —          (170,026

Net borrowings (repayments) on other borrowings

     —          12,296        (4,473       7,823   

Exercise of land option contracts from an unconsolidated land investment venture

     —          (4,628     —          —          (4,628

Net receipts related to noncontrolling interests

     —          —          391        —          391   

Common stock:

          

Issuances

     10,761        —          —          —          10,761   

Dividends

     (7,562     —          —          —          (7,562

Intercompany

     (212,652     165,478        47,174        —          —     
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net cash provided by (used in) financing activities

     (160,488     173,091